Zeroing In On Discount Financing

Automakers' loan plans are great, if you can qualify!

Courtesey of August Cole, of CBS.MarketWatch.com submitted this analysis of the state of auto finacing

CHICAGO (CBS.MW) -- As zero-percent financing nears its one-year anniversary this September, the cut-rate programs have defied critics who thought they'd have the lifespan of a fruit fly.

Dismissed originally as a marketing gimmick, the discount lending had a stirring effect on consumers in the wake of Sept. 11, pushing car sales at a time when the American economy needed a boost.

But the buzz has continued. Just last week, Ford Motor unleashed its latest program that goes so far as to offer zero-percent financing for up to five years. That's a better rate than the Fed charges banks.

It's only a good deal, though, if you can get it.

Screaming zero-percent headlines in the Sunday paper's auto section and the siren song of TV ads are effective at keeping up dealer showroom traffic.

"It's primarily a showroom draw," said Art Spinella of CNW Marketing Research.

Credit score is what counts

Yet fewer qualify for the zero-percent programs than you might think -- only about a third, according to Consumer Reports. The reason is you have to have bulletproof consumer credit.

To know where you stand on the credit-rating scale, check out a site like MyFICO.com. For $12.95 you can buy a credit report that includes your FICO score, a common measure of creditworthiness used by lenders.

It makes sense to check where you fit in because you don't want to find out you can't get the rate you want on your prized set of wheels.

The last place you want to learn you don't qualify is in front of the slick dealer-finance specialists, who, if in the first few words say they're your friend, you can be assured they're anything but.

Then you're forced to choose: do you love the deal or is it the vehicle itself. For many, that seemingly simple choice is one of the toughest in the buying process.

"Don't just fall in love with a car because it has a particular rebate," said Rob Gentile, manager of new and used car pricing services at Consumer Reports.

Since July and into the first half of August, of those who come into a dealership, 36 percent qualify for zero-percent finance programs, according to Spinella. Of that group, about 41 percent take advantage of the zero-percent finance deal.

Consumers who have the highest credit scores may not want the zero-percent financing when they see the results.

Zero-percent rates, typically available only for a 36-month term or less, often result in too hefty a monthly outlay. Take a top of the line Ford F-150 and you're looking at well over $30,000. At zero percent over three years, that's $833 -- as much as a 30-year mortgage on a $135,000 house.

Fortunately, in most instances, automakers are giving consumers the option of choosing a rebate instead of the low-rate financing.

Not all is lost, however, even if you don't make the credit-score grade. Remember, you still have power: Your dollar is still coveted. For that reason you must negotiate. Never lose sight of that, says Gentile.

Plus, the lending rates available from many banks and dealership finance offices are still historically attractive, even if you can't get zero percent.

To find out what deals are available, the Web is your best bet. You can peruse a manufacturer's site directly, like Ford's, or use Edmunds.com's list of incentives.

Competitive picture

It is worth remembering that the reason automakers have gone to so much trouble to cut prices and lending rates is because they need to sell these cars. And quickly.

So you should understand the mechanics of these deals.

Discounts such as an end-of-year rebate and the alluring zero-percent finance program are passed directly to the buyer by the manufacturer. Dealers aren't missing out on their cuts. And that means there is room to haggle no matter what incentive is offered.

For $12, Consumer Reports can get you what they say is the dealer's wholesale price on a vehicle. That edge has saved their users more than $2,000 on average, they claim.

All the incentives underscore a broader trend of falling vehicle pricing. That's been a factor in the auto industry for the last 10 years, said Paul Ballew, a top sales and marketing analyst at General Motors.

"That's a fundamental pressure we face in the industry," he said.

For Ford, General Motors and Chrysler, market share is still at risk and that's one reason these deals are still with us.

The incentives that helped lure consumers to the lots last fall now help purge dealership inventories of 2002 models to make way for this fall's 2003 versions.

That need is no different at an import firm like Honda, which is offering discounts on its 2002 Accords to pave the way for the revamped 2003 line. It's not zero percent, just a sizeable discount.

Among domestic automakers, GM's zero percent deal expires Sept. 3 and Ford's program is good through Sept. 30. Chrysler's deal also ends on Sept. 3. GM reportedly won't extend its zero-percent offer.

Kicking the habit

The question is: have consumers become so addicted to the cheap finance rates and rebates that they won't buy if the programs are discontinued?

"They started this chain reaction of incentives and rebates that's propelled car buying into a new arena," said Consumer Reports' Gentile.

It's also kept momentum in an industry that's very sensitive to consumer confidence.

"There's an expectation in the minds of people this is a good time to buy a vehicle" because of the promotion publicity, said George Pipas, Ford sales spokesman.

But in this case perception may be reality. "It is a great time to buy a car," Gentile said.

August Cole is spot news editor at CBS.MarketWatch.com in Chicago