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March 20, 2003

USA: Dealers call for new incentives to excite zero-percent-jaded buyers as war starts – paper

Zero percent financing, which kept car sales buoyant after the September 2001 terrorist attacks, may not be enough to keep buyer interest up during the Iraq war, a report in the New York Times (NYT) said on Thursday. Car lots are emptying, and dealers, suppliers and analysts are worried that, in contrast to the aftermath of the attacks, Detroit may not have a tonic to offer a paralysed economy, the NYT said.

By bcusack

Zero percent financing, which kept car sales buoyant after the September 2001 terrorist attacks, may not be enough to keep buyer interest up during the Iraq war, a report in the New York Times (NYT) said on Thursday.

Car lots are emptying, and dealers, suppliers and analysts are worried that, in contrast to the aftermath of the attacks, Detroit may not have a tonic to offer a paralysed economy, the NYT said.

“Zero percent has been around for quite a while,” Conrad Darby, who owns four General Motors dealerships in Sarasota County, Florida, told the paper, “and the American public tends to get jaded on anything that’s longer than their short-term memory.” Sales, he added, are “very soft” this month.

GM’s chief sales analyst, Paul Ballew told the NYT:  “Zero percent continues to be more effective than any other offer out there” but, acknowledged, “in this environment of uncertainty, we are all wondering how effective any incentive programme will be.”

The NYT said 2003 sales overall have been sluggish even as incentive spending — particularly by the US car makers — has continued to rise.That makes for an unattractive business recipe.

“What are the incentives getting you? It’s clear they are not working as well,” veteran auto analyst Maryann Keller told the New York Times. “There’s no urgency or call to action from incentives anymore.”

The paper said that some industry experts say that high petrol prices, driven up by tight supplies and war jitters, are cutting into car sales over all and are beginning to affect car shoppers’ preferences. While SUVs in general continue to gain market share, for example, sales of the largest SUVs have been sluggish.

Toyota general manager Donald Esmond told the NYT that Toyota’s largest vehicles, like the Sequoia SUV, were selling “not as well as some of the more fuel-efficient vehicles,” like the smaller Highlander sport utility and added that he is seeing evidence of at least a short-term shift by customers toward more fuel-efficient vehicles in sales of the company’s hybrid Prius.

“We sold 1,968 last month, up 32.9% from a year before,” Esmond told the NYT. “It was our best-ever Prius month, and right now we’re tracking to well exceed that this month.”

GM’s Ballew, told the newspaper that the weakness in sales of the biggest SUVs was “not because of fuel economy,” but a result of the many alternatives that have emerged, like luxury and smaller SUVs and so-called crossover vehicles that combine aspects of cars and sport utilities.

But the New York Times noted that February was the second-worst sales month of the last four years, with sales falling 6.7% from a year earlier, to a seasonally adjusted annual sales rate of 15.4 million vehicles while JD Power expects the pace to fall to 15.25 million in March, compared with a strong 17.1 million last year.

According to the New York Times, Merrill Lynch, in a report this week, noted that car makers spent an average of $US2,225 per vehicle on incentives in February, compared with $1,673 in February 2002.

“Based on February sales results, we are concerned that consumers’ responsiveness to incentives is beginning to dull,” the report said, according to the NYT. “Nevertheless, with inventories mounting, we believe still higher incentives are in store for the near future.”

Some car dealers told the NYT that the manufacturers might again inspire shoppers if they brought back the across-the-board zero percent financing offers that were widely available for months after the September 11 attacks.

“Zero percent for 60 months on a whole product line is very different than what’s been out for the last few months,” Michael Maroone, president of AutoNation, the country’s largest chain of dealerships, told the New York Times.

Darby, the Florida GM dealer, agreed, telling the newspaper: “We have to do something to whet the appetite.”

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