Just two weeks after pulling the plug on its 0% financing scheme, General Motors is reintroducing them - after sales fell without the incentive. But US sales can't be sustained forever at the artificial levels seen over the last 12 months. The 'big three' will eventually have to accept fallingsales.
General Motors, the world's largest carmaker, has reversed its decision to abandon 0% finance schemes after a fall in sales. The decline came immediately after the incentive had been removed, as customers looked to Ford and Chrysler for interest-free offers.
Heavy discounting in the US began after September 11 when the big three manufacturers launched their 'Keep America Rolling' campaign. New cars either had their prices reduced, were offered interest-free, included free options, or were offered with a combination of these incentives. The effect has been to sustain sales at artificially high levels for the past 12 months.
While the discounts have enabled manufacturers to shift their inventory, the margins achieved on new vehicles have been consistently eroded, which has in turn reduced the carmaker's cash reserves.
GM, Ford and Chrysler will eventually have to accept falling sales, given the unsustainable levels of new car sales, and the poor margins which are damaging the business. The real blow for the domestic firms is that the Japanese manufacturers continue to gain market share without discounting to the same levels.
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