It's getting harder to find those zero-percent financing deals on new cars

With inventories in a more healthy place and nationwide interest rates ticking up, a report from Edmunds shows that zero-percent finance deals accounted for the smallest portion of July auto sales in over 10 years.

The report shows these deals accounted for just 6.92 percent of new car deals in July. That's a significant drop off from last year's 11.34 percent, or 11.18 percent 5 years ago, representing the lowest proportion of deals since 2005.

"It's definitely much less pervasive than it's been in the past," Jeremy Acevedo, Edmunds' manager of industry analysis, told CNBC. "We're seeing levels that are a little more than half of what they were last July."

Automakers have a good inventory mix of in-demand vehicles that don't require heavy incentives to sell, Acevedo said. You can still get zero-percent deals on less desirable vehicles — sedans in particular — but the automakers aren't as weighed down with previous-model-year vehicles this year.

Additionally, zero-percent finance deals are becoming a less cost-effective way for automakers to drive deals. General Motors, which popularized the concept with their post-9/11 "Keep America Rolling" zero-percent financing, has been less aggressive with the practice this year.

"That's partly a function of rising interest rates, which makes it a little more expensive," GM spokesman Jim Cain said.

It's still pretty widely used in the industry, but GM likes to keep a mix of different incentives in the industry, he said.

"The way we try to approach things is to make sure we have competitive lease deals, especially in markets like the Northeast and California where leasing is really possible," Cain said. "And we have a simple and compelling message that's easy for our dealers to advertise and cuts through the clutter."

For people looking to buy rather than lease, Cain says the company is focusing on direct discounts that make sense to the customer. Rather than differing interest rates for different terms and buyers, it's easier to effectively market a 10 percent discount.

"It's clear and compelling," Cain said. "It's familiar, because that's how other retailers typically have their sales promotions."

And while it's been a major part of the summer sell down for all three major American automakers since 2005, Acevedo isn't optimistic that zero-percent financing offers will be commonplace in the future.

"It doesn't look like APRs are going down any time soon," he said. According to the report, the average annual percentage rate, or APR, in July was 5.74 percent, compared with 4.77 percent a year ago. Overall, interest rates are near their nine-year high.

Some automakers —Subaru, Mazda, Cadillac, and Lincoln were the ones Acevedo specifically noted — are making more interest-free deals than others. But if automakers can offload their 2018 inventories without having to offer zero-interest loans, Acevedo expects that to signal the end of widespread availability of these loans.

That, combined with ever-increasing APRs and epic term lengths, means Americans will likely continue to spend a rising proportion of their car budgets on financing alone. To Acevedo, that may spell long-term trouble for the automotive market.

"It definitely, to us, signals some caution lights to be aware of what's happening ahead," he said.

Let's block ads! (Why?)

from Top News & Analysis https://ift.tt/2Pjj1LQ
via IFTTT