Holidays breathe life back into 0% auto loan

David Welch, Keith Naughton and Gabrielle Coppola
Bloomberg News

The zero-percent auto loan is making a comeback, though it’s probably going to last only as long as the holidays.

General Motors Co., Ford Motor Co. and Nissan Motor Co. are offering no-interest loans for as many as six years on some of their most popular vehicles, including Chevrolet Silverado and Ford F-150 pickups and the Nissan Rogue SUV. Black Friday and year-end bargains may help keep sales from slipping and clear out 2018 model-year inventory.

The zero-percent deals are surprising since it’s become more expensive to offer cut-rating financing as the Federal Reserve has raised interest rates. The share of U.S. vehicle sales financed with zero-percent loans shrank to just 3.8 percent in October, the lowest in more than 11 years, according to market researcher Edmunds.

“It’s getting too costly for the automakers, and it just pushes the cost onto the consumer,” said Ivan Drury, a senior analyst at Edmunds. “Zero percent is exiting the market.”

Holiday shopping this year is expected to be the busiest in recent memory, with high consumer confidence and rising wages spurring more spending. Deloitte sees retail sales rising as much as 5.6 percent to more than $1.1 trillion.

GM is offering zero-percent financing for 72 months on the Silverado pickup and Equinox and Tahoe sport utility vehicles, and for 36 months on most other Chevy models as part of its Black Friday sales event. While the deals mainly apply to 2018 model year vehicles, most 2019 Equinox SUVs are eligible, according to the brand’s website.

“The reports of the death of zero percent were exaggerated,” Jim Cain, a GM spokesman, said by phone. “We said all along it was an important part of our tool kit.”

Ford’s “Built for the Holidays” advertising and incentive campaign will run through the end of the year. The company lets regional sales teams decide whether to emphasize zero-percent financing, cash offers or a combination of both. The 2018 model year F-150 is eligible for the financing for 72 months.

“Sales are exceeding all analysts’ expectations because of the strength of the overall economy,” said Erich Merkle, Ford’s U.S. sales analyst. “We have record-low unemployment, consumer confidence is high, small-business confidence is high and median household income is rising after being stagnant for a long time.”

Nissan’s year-end sales event offers include zero-percent financing for 60 months on models including the Altima and Maxima sedans, Rogue and Murano SUVs and the Titan pickup, according to its website. The deals mainly apply to 2018 models, and several also include cash incentives.

The deals may come as a relief to retailers that have grown concerned about the average interest rate on new-car loans rising to more than 6 percent. Wes Lutz, chairman of the National Automobile Dealers Association, told reporters in Detroit last month that costlier lending was “a huge concern.”

Drury, the Edmunds analyst, said cheap financing will remain a tactic to lure consumers into showrooms. But these loans probably will go back to being scarce once year-end sales promotions end.

“There’s still low APR deals out there,” he said, referring to annual percentage rates. “It’s just the idea of it being completely free is going away.”