Commentary: Car Ownership Costs Fall

Guest Commentary from August Cole, CBS.MarketWatch.com

CHICAGO CBS.Market watch commentary: First there were the zero percent finance rates

Now, take a look this weekend when you pick up a gallon of 2 percent milk. Chances are, it'll be more expensive than the 89 octane in your tank.

This is just one example of how, over the last few months, the costs of car ownership have been coming down. That's not just what you pay now, either. Consider the Hyundai-like Chrysler (DCX: news, chart, profile) warranty that now extends the automaker's aegis up to 100,000 miles.

This is what it takes to get people to buy when their chips are down. Deals. And lots of them.

So far it's working. Last month, North American auto sales for Ford (F: news, chart, profile) and GM (GM: news, chart, profile) surged by a third. And the latest retail sales data jumped only because of the lift from auto sales. See full story. For November, the trend looks strong too.

Used up

Used car prices are down, too, as dealers handle an influx of vehicles turned in on lease or trade-ins. Inventories are rising.

For domestic automakers, it's a problem, according Rod Lache, Deutsche Banc Alex. Brown analyst. "We see several negative implications for automakers stemming from declining used car pricing," he wrote in a Nov. 20 research note. Lache said that residual vales are dropping hard, which means that cars aren't worth that much when turned in at the end of a lease. This is more true for domestic makers than foreign brands.

While it might mean you can score a deal if you buy your leased car at the end of term, it's going to hurt finance operations, Lache noted. As well, marketing costs end up rising.

Peer pressure

Competition in North America is driving the automakers to embrace these discounted finance rates. If one goes for it, the others will.

Transatlantic auto giant DaimlerChrysler's Chrysler Group this week followed in the tracks of Ford and General Motors by extending its zero percent program past the end of the year. Chrysler's deal goes through Jan. 8 while GM's is valid through Jan. 2 and Ford's through Jan. 14.

Sure, most of the terms are now limited to the 36-month finance deals, but the headline numbers are still there to lure buyers into the showroom.

So far, these programs have been a success for consumers but not so much for the automakers. As analysts have repeatedly pointed out, it's expensive at a time when every penny, and pfennig, counts for the domestic automakers.

Importantly, these programs accomplished what they set out to do: stoke sales. Yet the repeated prolongation marks a sort of failure itself. When consumers get used to a good deal, it's hard to go back. We'll see just how hard when the latest crop of programs expires in January.

Suddenly the deal of a lifetime looks like it has the potential to become the deal for the duration of your lifetime