When analysts were expecting new-vehicle sales to crater by as much as 80 percent in April, automakers piled on 0 percent financing deals for up to 84 months, sending overall incentives to record levels. But with sales coming in stronger than expected — and further normalizing in early May — some automakers are pulling back on their best deals.
Fiat Chrysler Automobiles went in strong on 0 percent for 84 months on certain models, including some Ram pickups, but pulled back in May to 72 months on its most-attractive financing offers. At Hyundai, some 0 percent/84-month financing deals also were reduced to 72 months in May. Other offers remained, but with first-payment deferrals cut to 90 days from 120 days.
While automakers have been able to juice demand with rock-bottom rates and first-payment deferrals, they now face the prospect of tight supply since the coronavirus caused factories to shut down. As plants restart and sales volume rises, automakers will find a balance of attracting buyers while managing their reduced inventories.
SPARKING INTEREST
Many brands offered interest-free loans in April to lure U.S. consumers as COVID-19 sunk sales. Here are the percentages of 0% loans in the month. In April 2019, 0% financing accounted for 3.2% of all loans.
Brand % of loans
Land Rover 86%
Volkswagen 74%
Jaguar 66%
Subaru 56%
Ford 50%
Genesis 41%
Ram 41%
Lincoln 38%
Hyundai 36%
Jeep 31%
Source: Edmunds
"With consumers spending far less, automakers must do what they can to lure people into the market, and incentives are the best way to do that," said Jessica Caldwell, director of insights at Edmunds. "Even after shelter-in-place orders are lifted, incentives are expected to stay generous as the country begins to financially recover."
The 0 percent offers for new vehicles represented 26 percent of April sales, according to Edmunds. Mainstream SUVs garnered 48 percent of the loans, followed by pickups at 30 percent and mainstream cars at 15 percent. Luxury vehicles were just 5 percent of the total, but some premium brands offered 0.9 percent.
Leading the percentage of April loans at 0 percent was Land Rover with 86 percent of sales. In April 2019, only 3.2 percent of auto loans were at 0 percent.
The financing deals did what they were expected to do, said J.D. Power. Although the Detroit 3 didn't report sales last month, the full-size pickup segment saw the best sales by far thanks to financing and other incentives. Hyundai's retail sales fell just 28 percent in April. Honda — without the no-interest offers — saw retail sales dive 54 percent. U.S. sales overall last month were about 50 percent off vs. last year but had recovered to about 70 percent of normal by early May.