Zero percent financing has been revived in the USA and European carmakers are feeling the heat, Automotive News Europe reported.

Following the start of the Iraq war, aggressive financing offers by General Motors and Ford in North America brought sharp criticism from Volkswagen group Chairman Bernd Pischetsrieder last week.

Pischetsrieder said such offers "deceive" customers and that VW would not participate. But there were signs some VW dealers were making aggressive offers of their own.

And European carmakers know if the war is prolonged and creates further economic uncertainty, a similar wave of incentives could cross the Atlantic.

"If there's a prolonged slowdown, I could see that [zero percent
financing] come to the market, though we're not seeing any evidence of it now," said Gerry Keaney, Volvo's marketing chief.

For now, zero percent in Europe remains an isolated phenomenon dictated by market conditions. Ford of Britain this month widened zero percent offers to include virtually all Mondeos. Ford of Europe spokesman Don Hume said incentives on some Mondeos have been in place since October. The offers, which are indicative of deals elsewhere in Europe, are due to weakness in the upper-medium segment and not to the war, he said.

Intense competitive pressure in European markets has already brought luxury carmakers into the incentives game, which is normally dominated by volume carmakers.

In the USA, European carmakers have been forced to respond with aggressive offers to match those of the Detroit carmakers. BMW, for example, slashed lease rates on the 525i.

After the terrorist attacks of September 11, 2001, GM made big news in the USA with aggressive zero percent offers tied to the patriotic "Keep America Rolling" theme.

"We don't have a similar situation today," said a GM Europe spokesman. "During the first two months, the market was actually up a little over last year. And Europe is different."

But a cut in interest rates by the European Central Bank could change the climate, Automotive News Europe said.

"A lower ECB rate means manufacturers could try and emulate the 'Keep America Rolling' strategy," Global Insight Automotive analyst Nigel Griffiths told the newspaper. "You could look to manufacturers starting to adopt quite aggressive zero financing."