GM, Chrysler offer zero pct finance to 2003 models

DETROIT, Sept 4 Reuters reported that General Motors Corp. and Chrysler said on Wednesday that they will offer interest-free three-year loans on most 2003 model cars and trucks, signaling no end to the brutal price war in the automotive industry.

The latest extension of the zero percent loans, which sent sales to record levels last October after they were first introduced, puts pressure on Ford Motor Co. to match. Ford said it will concentrate on selling out its 2002 models by offering interest-free loans of up to five years.

Deep discounts including zero percent financing were first introduced by GM after the Sept. 11 attacks, when a stunned nation stayed away from dealerships and sales came to a near standstill.

Consumers have kept U.S. vehicle sales running at a surprisingly strong rate for most of the past year, which has helped sustain a modest economic recovery. New vehicle sales account for roughly 10 percent of the U.S. economy.

"Zero percent financing, the fact that it has kept the (automotive) factories running at a higher pace than they otherwise would have, has been one of the unsung heroes of the mild recession," said economist Patrick Fearon of A.G. Edwards.

On Wednesday, automakers reported the strongest sales results so far this year -- a 13 percent rise in August to an annual rate of 18.7 million vehicles. That could signal an improvement in the broader economy, Fearon said.

"We do think that the third quarter might come out a little bit better than people expected when you see numbers like the strong auto sales," he said.

GM brought interest free loans back this summer to clear out its stock of 2002 models, which helped it cut its inventory of unsold vehicles to its lowest levels since October, 1994.

GM on Wednesday raised its production forecast for the remainder of the year, and boosted its earnings forecast for this year to $6.50 per share - excluding its Hughes Electronics Corp. unit and any special charges - from an earlier forecast of $6.00.

GM's shares closed up 20 cents at $45.75 on the New York Stock Exchange. DaimlerChrysler AG , the parent company of Chrysler, closed up $1.65 on the New York Stock Exchange at $41.52. Ford shares ended up 11 cents at $11.05.

Following the Sept. 11 attacks, GM said it was forced to take urgent measures to maintain sales.

"The option that was faced is close down a bunch of plants or do an effective incentive. And we do better when we run our plants than when we don't," GM Chief Executive Officer Rick Wagoner told reporters on Tuesday.

Wagoner said GM strived to offset the high costs of the zero percent loans by cutting costs elsewhere. GM initially expected zero percent to end after about 45 days, and was surprised by consumer reactions.

Diane Swonk, chief economist with Bank One Corp. in Chicago, said the zero percent financing offer perfectly coincides with home owners refinancing their mortgages. U.S. consumers are simply switching some monthly payments from their homes to their garages, she said.

"People buy a car based on what the vehicle costs them per month, not what the vehicle costs them over the life of the vehicle," she said.

The new program on 2003 models, which expires on Oct. 31, will likely generate fewer zero-percent loans than the previous five-year programs, as fewer buyers choose three-year loans due to the higher monthly payments.

GM said it will offer interest rates of 2.9 percent on four-year loans and 3.9 percent on five-year loans toward the purchase of new 2003 model Buick, Cadillac, Chevrolet, GMC, Oldsmobile or Pontiac vehicles through Oct. 31.

GM's Saturn, Saab and Hummer brands are excluded from the cash rebate and zero percent financing offers. In addition, no cash rebates are offered on the Chevrolet Corvette or Cadillacs