Car companies are not exactly giving their products away, but as the year draws to a close many are gambling as they take on the burden of interest rates, normally carried by the customers. Zero percent financing deals have proliferated across the industry, presumably on vehicles with inventories that are too high, or 2013 models that dealers no longer want as they begin to market 2014 ones.
Source: Courtesy Ford Motor Co.
Investors should be worried that the margins of many car companies will be under pressure in the fourth quarter and that 2013 will not end well for them financially.
In place of 9% financing, there is another financially aggressive tactic — cash back at the time of sale. Manufacturers are taking on the burden of lower margins to hurry inventory out the door.
Chrysler offers among the most aggressive programs. The 2013 version of its 300 model is being offered at 0% APR on certain models for as long as 72 months. It is making a similar offer on its Town & Country minivan.
Ford Motor Co.’s (NYSE: F) F-150 pickup is among the bestselling vehicles in the United States. But the number two auto maker must need to clear out 2013 inventory. Ford is offering 9% APR for 60 months on its F-150 XLT SuperCrew or SuperCab 5.0L w/Luxury Pkg. Alternatively, buyers can get up to $8,000 in “total savings.”
Not to be outdone, Chevy has incentives for most of its pickups and SUVs. Among these are “cash allowances” of $2,000 on the Tahoe, Suburban and Avalanche, and $3,500 on the Silverado 2500 and 3500. The competition for pickup sales must be remarkably heated.
Cadillac also is trying to clear out its 2013 inventory, particularly its SUVs. The luxury car brand of General Motors Co. (NYSE: GM) is offering a $3,000 cash allowance on three versions of the 2013 Escalade.
GMC also has aggressively priced financing on its pickup line. The 2013 versions of its Sierra 1500 Crew Cab and 1500 Extended Cab come with cash allowances of $5,000 and $5,500 respectively.
Incentives have been a threat to car manufacturer margins for decades. This year is no different. Any company that has to use extreme incentives to bring in customers is going to suffer when earnings are out.
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