Serves the Commercial Small Fleet Market of 10 – 50 Vehicles

Zero Percent Car Loans Likely to Continue

June 24, 2004

Interest-free car loans will continue through the rest of the year, a General Motors analyst told Reuters last week. U.S. Federal Reserve officials are expected raise interest rates when they meet June 29 and 30. By continuing to offer zero percent financing after a rate hike will cost the industry $3,000 to $4,000 per vehicle, said Paul Ballew, head of market and industry analysis at GM. "You will see cash play a more prevalent role. You may see leasing play a more prevalent role," Ballew said. "Or at times, it may be 0 percent because as interest rates go up, 0 percent may be more attractive to consumers."Detroit's automakers are also counting on the strengthening economy that typically accompanies an interest-rate rise to offset the higher costs of offering 0 percent loans. They may also be able to raise prices, said George Pipas, Ford's chief sales analyst. Already there are signs prices are on the rise. The average transaction price for a vehicle, despite discounts of nearly $5,200, rose to $23,843 in the first half of June, an increase of about 4 percent from the previous year, according to CNW Marketing Research. But some analysts do not expect that trend to continue. Rising rates could dampen demand for vehicles and more incentives would be required to maintain an annual U.S. sales rate of 16.5 million to 17 million, said Prudential Equity Group analyst Michael Bruynesteyn in a research note.
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