By on April 20, 2010

Ever since a debt crisis toppled the already-precarious auto sector into undeniable crisis there’s been a running debate about when US car sales would “return to normal.” By now though, even the most ardent bulls seem to have accepted that 2007’s 16m number will be out of reach for at least several more years. So, how will we know when we’ve hit the new normal? According to Edmunds, at least one statistic roared back to 2006 levels last month: the percentage of sales financed at zero percent.

In March, more than 22 percent of financed new cars were purchased with zero-percent finance deals. Last March the total was just 13 percent.  The prior high was 21 percent in July 2006.

Toyota was the king of zero, as 71 percent of its March sales were zero-percent deals, according to Edmund’s numbers (bye-bye armor-plated resale values). Mazda and Mercury followed at 58 and 32 percent each. Though Toyota clearly had its finger on the scale, aggressively pushing finance deals to make up for volume lost during its recall scandal, it’s not a fantastic sign for the industry at large that zero-percent financing deals were at 2006 levels, and yet failed to make sales numbers look anything like March 2006. Credit may be loosening, but it doesn’t appear that there are millions of units of pent-up demand just waiting for the right credit deal. It’s looking like it might be time to rethink “normal” again.

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10 Comments on “Edmunds: Record Percentage Of March Sales Were Financed At Zero Percent...”

  • avatar

    That’s the second worst/second most annoying car commercial ever.

  • avatar

    There is no such thing as “zero percent interest” on new cars. The cost of financing is built into the purchase price.


    • 0 avatar

      Let us consider a VW Passat (VWs were being sold at zero, and still may for all I know). At 30K with a 7% simple interest rate (no money down). Over 60 months the cost of the car is $35,642.16.

      Scenario 2: At 0% interest the cost of the car is $30.000.00 over 60 months.

      Scenario 3: A Passat negotiated down to 26 large at 7%/60 is a tad over 30.

      Conclusion: if you buy at list it may be a wash. If you are able to negotiate down, and retain the 0% then you will likely make out on the deal. If you have to borrow money at interest then it depends on the rate, and who knows what that could be as that, of course, depends on several factors.

      My take: no matter what deal you get, it’s probably a loser given what cars have become.

    • 0 avatar

      it’s probably a loser given what cars have become.

      You mean better in nearly every possible way?

    • 0 avatar

      There is 0%, though you sometimes do lose manufacturers incentives. As far as if its worth it or not, it depends on the case.

      Let’s look at mpresley’s style of example in a little more detail with a little more real numbers. A pretty much loaded to the gills Ford Fusion SEL V6 with navigation and all the other bells and whistles stickers at $30235. Let’s say you talk the dealer down to a great deal at $200 over invoice, so you are buying the car for $28,345. If you finance that at 0% (forgetting sales tax and state fees) you end up with a payment of $472, and pay only what you pay for the car. If you take the $2000 in rebates instead of the 0%, and get a great interest rate, let’s say 5%, which is about as low as the average great credit customer can go without going to a credit union, you end up paying only $26,345 for the car, but $29.829 once you figure in the finance charges, and you have a payment of $497, so, in this case, the 0% works out better. In fact, to get a better end result by taking the rebates, you’d have to get a 2.97% rate, which no bank (i.e. no non-factory subsidized finance arm) is going to give. Even if you are one of those rare folks who puts down a 20% down payment on their car, the 0% still saves you more in this case.

      Taking the example a step further, with a loaded $56,000 Lincoln MKS AWD Ecoboost, where you have the option of 0%x60 or a $1500 rebate, the 0% will save an even larger amount of money.

      Not to say that the rebates don’t ever make sense. If you have negative equity in your trade, taking the rebates might be the only way to get the loan to value ratio in a range where a bank will give you financing at all.

      Having the ability to buy the car in cash can be a crap shoot. On the surface, it makes sense to just take the rebates and pay a lower price, but if you have the capability to invest your money and get better returns than the amount of the rebates, the 0% might be the better option. If someone had come in to buy a $30,000 F150 back when Ford stock was hanging around $2.00, and taken the 0% by 60 instead of the $5,000 rebate (and I’m guessing at those amounts, I don’t remember what incentives were back then) and then just invested the rest of the money in Ford stock that they would have put down to buy the car in cash, they would be way ahead of the game right now.

  • avatar

    So, which gimmick works best – last Summer’s $4C or this Spring’s 0% financing?

  • avatar

    0% only works for people who keep the car for the full term, since you usually have to give up a huge rebate as a result. I guess that that would work for most conservative Toyota owners, who probably won’t buy another car for 15 years.

    This high a percentage of 0% financing tells me that people with good credit are still buying cars, not so much for everyone else.

  • avatar

    Anybody factor in what happens if, after the “proper” interval, you are still making zero-percent payments but the car’s value as determined by your insurance is less than what you owe and the vehicle is stolen or totaled by a wreck, whatever and the amount paid by your insurance is less than what you still owe on the vehicle?

    • 0 avatar

      I imagine the same thing that happens if your vehicle is stolen/totaled and you are in a traditional loan with interest – the balance becomes due (as you no longer have the collateral for the loan) and you are SOL.

      That’s why there is such a thing as gap insurance, and why it is a good idea if you are getting into a loan upside down, and especially so if you are going to be upside down for a while, that way if something like that happens, it’s a wash, and you walk away.

      With no money down, the time to gain equity in a vehicle isn’t appreciably longer in a 0% loan than it is with an interest loan where you took the rebates at the start. Yes, you are in a slightly better position at month 1 had you taken the rebates, from a purely loan to value point of view, but your early payments are heavily weighted towards interest and not principle, while as with the 0% loan your payments are 100% principle, so you catch up with equity much quicker. In my above Fusion example, taking the 0% instead of the rebates means that after 5 payments, you have more than made up for the initial rebate, and after another two or three (guessing, don’t feel like making out an entire amortization table to find the exact spot) you’re actually closer to equity than the person who is paying interest.

  • avatar

    I wonder what the real cost to manufacturers is. For example, on a typical $30,000 car financed at 4.5% for 5 years the cost of financing would be $3,557. Do the manufacturers shoulder this full amount? Do they finance this or pay an up front fee? If they finance it, do they do it at a fixed rate, or variable (greater risk?) What is the true cost per vehicle?

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