GM Launches 0% Financing for 72 Months; Cuts More ProductionBy Michelle Krebs June 23, 2008
By Michelle Krebs
General Motors is crying uncle.
After showing immense restraint in its use of massive incentives by trying to keep production in line with demand for its vehicles, the Detroit automaker Monday announced a fire sale: zero-percent financing for 72 months on most of its models through the end of June.
"This is an absolute screamin' deal," said Mark LaNeve, GM vice president in charge of North American sales, in a conference call with the media.
Sales Sag Continues
GM's LaNeve agreed with recent analysts' projections that June will be another dismal month for U.S. vehicle sales, in the same vein as April and May. Companies post their monthly and six-month reports on July 1.
"Buyers are paying close attention to their monthly income and being cautious," said LaNeve. "We're trying to spark the market at the end of the month and close the quarter strong with this unbelievable offer that we hope builds momentum into the summer [inventory] clean-up."
He noted the no-interest financing for six years strategy used by GM in July 2006 and September 2004 worked very successfully.
So starting Tuesday, buyers can get zero percent financing for up to 72 months on all but the hot-selling models sold by GM. "It's a simple, compelling offer -- 72 months of interest-free loans," said LaNeve, which is a good way for buyers who owe more on their current vehicle to get into a new one.
Indeed, Jesse Toprak, executive director of Industry Analysis for Edmunds.com, the parent of AutoObserver, agrees. "Automakers are trying to find ways to jump-start some of the lowest levels of new vehicle sales in several years. Zero percent financing for six years promotions have been quite successful in the past -- especially when they were offered for a limited amount of time."
Toprak predicts other automakers will jump on the bandwagon with similar promotions.
Interest-free financing is available on almost 80 percent of GM's 2008 model-year inventory, including all trucks and all SUVs but also some cars and crossovers. For instance it is also available on the Chevrolet Equinox, Impala and HHR; the Buick Lucerne and LaCrosse; the Pontiac Torrent, Grand Prix and Solstice; the Cadillac STS and DTS; all Hummers; the Saab 9-3; and the Saturn Sky, Aura and Vue.
Only models in tight supply are not covered by the zero percent financing deal. Excluded are: Cadillac CTS; Chevrolet Malibu, Aveo, Malibu and Corvette; Buick Enclave; GMC Acadia; Saturn Outlook; Pontiac Vibe; and the Chevrolet Tahoe and GMC Yukon 2-Mode Hybrids.
Beating the Price Hikes
The massive incentive program comes on the eve of GM boosting prices on upcoming 2009 models by an average of 3.5 percent, about $1,000 per vehicle. "This is a fairly significant increase compared to previous years," said LaNeve. "It will be more on some products and less on others."
LaNeve said almost every model would see some price increase. Price hikes on specific models will be announced as the new ones come into the market, some beginning in mid-July.
He said the increases are an effort to boost falling revenues due to the massive drop in truck and SUV sales, skyrocketing commodity prices like the doubling of steel prices and costs driven higher by the soaring price of oil, from logistics of transporting vehicles and parts to producing the plastics that go into vehicles. LaNeve said the higher vehicle prices also reflect product improvements, added standard equipment and costs associated with meeting stricter government regulations.
Cleaning Up Inventory
But before delivering the price-boosted 2009 models to dealers, GM needs to clean up inventory. LaNeve insists at 750,000 vehicles, GM's inventory is at a historical low. However, he acknowledged, of those, GM has about 50,000 too many trucks and SUVs and about 50,000 too few cars and crossovers.
To that end, LaNeve said Monday GM will cut another 170,000 units from its production target in the second half of 2008 by extending summer vacation at a number of mostly truck and SUV plants.
Assembly plants affected include those in: Arlington, Texas; Fort Wayne, Indiana; Janesville, Wisconsin; Shreveport, Louisiana; Silao (Mexico); and Oshawa, Ontario (Canada). These will be closed for anything from one to 10 weeks from July through to the end of the year. These shutdowns will be in addition to the usual summer vacation schedule.
While it cuts truck and SUV assembly, GM will boost car and crossover production by 47,000 units through year-end by adding shifts at plants in Fairfax, Kansas and Lansing, Michigan to boost output of these models.
According to Edmunds.com's analysis, the days-to-turn -- the time between a vehicle being delivered at a dealership to it being purchased -- is a high 103 days for GM's large trucks and 71 days for large SUVs.
"GM is banking on this promotion to get rid of high levels of unsold inventory before the 2009 model-year vehicles start arriving at the showrooms," said Toprak.