GM offers 90 days in a GM vehicle for free

DEARBORN, Mich., Oct 10, 2002, Michael Ellis reporting for Reuters writes that General Motors Corp. isn't giving its vehicles away, but customers will be able to drive them for three months without paying a cent.

Firing another shot in the U.S. auto industry's price war, spurred by a slowing U.S. economy, GM on Thursday said it would offer zero down payment, zero payments for 90 days and zero-percent financing on the sale of most new GM vehicles.

"Zero is good, but three zeros is better," John Smith, GM's vice president of sales, service and parts, told Reuters following a GM dealers' meeting in Dearborn, Michigan.

GM, the world's largest automaker, decided on the new offer following internal data showing industry sales slowing sharply in the first weeks of October, Smith said.

U.S. vehicle sales were running at an annual pace of around 15 million vehicles in the first part of the month, Smith said, which would make October one of the weakest sales months in years. Forecasts of a falloff in U.S. vehicle sales and production next year battered shares of automakers worldwide this week.

"I sense that a lot of people are staying at home, trying to make sense of all the dismal economic news," Smith said. "Consumer confidence is especially fragile right now."

GM, which first introduced its zero percent loans following the Sept. 11 attacks last year, has used the aggressive incentives to help drive vehicle sales despite the struggling U.S. economy. But GM was one of only two major automakers to report a sales decline last month, due to its temporary withdrawal of interest-free incentives and low inventories of 2002 models.

GM and Ford Motor Co the world's second-largest automaker, have often matched each other's incentive moves blow-for-blow. Last month, Ford offered a three-month payment deferral plan on its 2002 models. A Ford spokeswoman said the company would remain competitive, but declined to say whether Ford would revive its previous offer.

Ford has suffered more from the industry's high incentives so far this year than GM or DaimlerChrysler AG's Chrysler arm, which have each managed to improve profits through cost-cutting. Ford has pledged to make billions of dollars in cost cuts, but many aren't expected to take effect until mid-decade.

It wasn't clear how much the new offer would cost GM or other automakers. Morgan Stanley analyst Stephen Girsky said in a research note earlier this week that the average downpayment for a new car had fallen to $1,013 in August, compared with $1,800 a year ago.

While GM would miss the cash from downpayments, it would work their value into the loans, with the extra interest as the main cost.

"The costs of that are not substantial," said Burnham Securities analyst David Healy. "GM has decided they're better off raising incentives than cutting production."

Such "0,0,0" plans are common among furniture and home electronics stores but have been rarely used in the auto industry until now. GM's program expires at the end of October.

GM officials said in addition to the payment plan, GM would also continue offers of zero-percent loans with terms up to five years on most 2002 models, excluding its Hummer and Saab brands. For its new 2003 models, GM will offer zero percent for terms up to five years on most of its passenger cars, and up to three years for most of its sport utility vehicles, pickup trucks, mid-size vans and Cadillac cars and trucks.