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CNN Live At Daybreak
Zero Financing May Hurt Automotive Industry in Long Term
Aired January 03, 2002 - 05:28 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
CAROL LIN, CNN ANCHOR: Auto industry analysts say the zero financing campaign by the big U.S. auto makers may have been effective in warding off an industry depression in the fourth quarter. But if that's victory, it may have come with some unintended costs.
CNN Financial News correspondent Tim O'Brien reports from Washington.
(BEGIN VIDEOTAPE)
TIM O'BRIEN, CNN CORRESPONDENT (voice over): New car dealers say the zero financing promotion has been a phenomenal success.
UNIDENTIFIED MALE: So G.M. announces interest free financing on every new car and every new truck.
O'BRIEN: The fourth quarter is traditionally a slow time for the auto industry. 9-11 could have made it disastrous. Interest free car loans have not only produced a rush of new car sales, they've also resulted in an unprecedented glut of used car trade-ins.
JONATHAN CHERNER, AUTOMOBILE DEALER: No question that about 50 percent of the people that we sell a new car to have a trade-in.
O'BRIEN: Ray Nichols, President of the National Auto Auction Association, says the zero financing on new cars has indirectly contributed to record sales of used cars, to around 16 million in North America in 2001.
RAYMOND NICHOLS, NATIONAL AUTO AUCTION ASSOCIATION: We're a tiny industry selling an $80 billion amount of cars this year. In my lifetime, and I've been in this business since I was 19 years old, I don't think there's ever been a better time to buy a used car.
O'BRIEN (on camera): Spoken like a true car salesman.
NICHOLS: I believe it. No, I believe it.
O'BRIEN (voice-over): Nichols says that's because prices on used cars have declined on average between 10 and 15 percent, and in some cases as much as 20 percent. The surplus of used cars with their lower prices could undermine the zero financing promotion on new cars, which some analysts believe could have been a costly overreaction. JOHN CASESA, MERRILL LYNCH: It was so successful now that you can't have it both ways. You can't have better than expected sales in September, October, November, December and expect great sales in the months after that.
O'BRIEN: Casesa predicts a sharp decline in new car sales in the first quarter. Because the auto industry accounts for about five percent of the country's gross domestic product, that would not help the economic recovery.
(on camera): But it would help at least one person, the consumer in the market for a used car. It's a buyer's market and likely to stay that way for some time.
Tim O'Brien, CNN Financial News, Washington.
(END VIDEOTAPE)
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