Car buyers flock as US automakers dangle cheap loans
Boston — More value for the dollar. American car buyers have been demanding it. Late last week they got it -- finally. In one impressive chop, General Motors, then Chrysler and Ford, rushed pell-mell to match one another with new, ultra-low financing rates for car loans.
The result: a tidal wave of car buyers flooding into show rooms. Loan applications at General Motors Acceptance Corporatation (GM's finance arm) were reported Friday to have doubled since the week before.
``It's been overwhelming,'' gasps Steve Dimattio, sales manager at Quirk Chevrolet in Quincy, Mass. ``Business has been good, and this just made it a lot better.''
Although business may have already been peachy for Mr. Dimattio, General Motors -- which counts Chevrolet among its nameplates -- is currently sitting on more than a million unsold cars.
That's a 95-to-100 day supply, and 60 days is normal. All in all, GM would like to get rid of at least 400,000 cars before '87 models hit showroom floors Oct. 9.
But even these ``strong'' incentives are expected to trim the glut by only about 150,000 autos, says one still-glum GM official. The new loan rates, he says, are ``making things look more reasonable, but they're not making things look a lot brighter.''
GM has been accused of suffering from chronic optimism in setting its production schedules. Various rationales have been offered to explain GM's motives in overproducing.
Some analysts say GM's different divisions have trouble seeing reality because each likes to project rosy sales pictures. Others say GM has played a clever game, sacrificing near-term profits to keep this year's buyers in GM cars. That presumably will keep them in GM cars in the coming years of heightened competition.
But there has been criticism that the continuing stream of incentives has ``addicted'' car buyers to the expectation of ``getting a deal'' on American cars, say several industry analysts.
They complain that US companies are sacrificing profits due to their inability to produce good products and sell without incentives.
GM is forecast to lose more than $100 million in the third quarter, largely as a result of loaning money below profitable rates.
Vernon Lacy, chief economist for American Motors Corporation, says talk of the US car buyer being ``addicted'' to incentives is nonsense.
``People aren't addicted to incentives. They're addicted to getting fair market value for their dollar. . . . These [low loan rates] are nothing but indirect price cuts, and the car buying public is very keenly aware of what a vehicle has on it, and what they are willing to pay.''
Other economists agree with Mr. Lacy that new foreign auto plants soon to be finished in the US and Canada will make '87 the first year of truly hot competition in the US.
``It's going to be extremely competitive, just like it is in Japan and Europe,'' says Lawrence T. Harbeck, a professor at the University of Michigan's Office for the Study of Automotive Transportation.
Others, too, says that even with these incentives, US carmakers are going to feel the heat from foreign competitors in 1987.
``I think the people are worn out on incentives,'' says Ernest Roy, sales manager for Wilmington Subaru in Wilmington, Mass.
``I think a quality product is going to win out in the long run. As far as I'm concerned, they're just using low rates to push distressed merchandise.''