Who's Defending Their Turf? Follow the Money

By Bill Visnic January 31, 2011

The industry got a little euphoric when December sales vaulted past 2.2 million vehicles and the Seasonally Adjusted Annual Rate hit almost 12.5 million - the highest SAAR of the year and the highest since late 2008 (except for August, 2009's Cash for Clunkers-induced 14.1-million SAAR aberration).

And while several automakers - General Motors Co. and Ford Motor Co. chief among them - like to boast about strengthening average transaction prices, it seems evident December's big SAAR came in part because of the almost unprecedented giveaways going down. December buyers feasted on the lowest average annual percentage rate for financing since Edmunds.com began tracking such info in 2004.

The average auto-finance loan was signed-off at a rock-bottom 4.16 percent in December, more than a half-percent lower than December, 2009, at the depth of the recession. And almost one in six auto loans was financed at 0 percent in December, the highest amount for all of 2010.

Cut-rate loans may not be the "money on the hood" that comes to mind when most of us think of incentives, but subsidized APRs still cut into margins - just not those of the automotive operations. More to the point, December's low APRs prove buyers still aren't pulling out the checkbook unless there's a serious spiff on the table.

Toyota Motor Corp. and GM's Cadillac and Buick led all makes in zero-percent financing in December; 40 percent of all Toyotas sold for the month came with a free loan. More than half of the Buicks and a third of Cadillacs sold in December were moved at zero percent.

GM and Toyota - not to mention Honda and Hyundai - are working the heavy enticement because they're feeling the market-share heat. But for different reasons.
We know Toyota is cranking up the incentive mill to bandage its recall-wounded rep, but the Japanese juggernaut also is at the nadir of its new-model cycles - there's nothing of newness or particular energy in Toyota showrooms.

At GM, its endlessly-heralded "launch models" of 2009 and 2010 inevitably are cooling; some are well more than a year in the market. But there's immense balance-sheet pressure at GM to keep sales volumes at least at 2010 levels, there's scanty new product in the near-term pipeline and Ford and Hyundai aren't going away.

This year is going to be the test of whether the fat $3.5 billion GM paid for sub-prime lending specialist Americredit can pay immediate dividends. The intent was to have access to competitive sub-prime paper and to ratchet up sub-prime approval rates - and GM's going to need every customer it can get if it's going to hold at its 2010 market share of about 19 percent.

Everyone knows Hyundai is helping itself to a bit of just about everyone's lunch, but incentives have played a role: competitors have been grousing for months about Hyundai and its lowball leases. Dirt-cheap rates on the Genesis sedan and the 2011 Sonata often are cited. Would Hyundai sales be quite so scorching if the company weren't dealing?

A final caution about December's sales: Edmunds.com data say December's lease penetration vaulted to 23.6 percent, the highest monthly rate since November, 2005. Most believe a certain amount of increased leasing signals a desirable return to normalcy - particularly for the luxury market - but in December, it looks like leasing wasn't about getting back on track, it was about pumping up the volume.

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