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May 1, 2020 5:00 PM, EDT

Automakers Avoid Disaster With 0% Financing

Cars on dealership lotGeneral Motors vehicles on display at a car dealership in Tinley Park, Ill. (Daniel Acker/Bloomberg News)

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Zero-percent auto financing deals hit a record last month as carmakers kept the U.S. auto market from collapsing.

More than one in every four new vehicles that sold last month did so with 0% loans, according to market researcher Edmunds. By opening up the lending spigots, the U.S. avoided a reprise of the almost 80% drop automakers experienced in China in February, the month that the coronavirus hit the world’s largest car market hardest.

Both 0% offers and longer-term loans are rescuing demand at a time when large swaths of the country are under stay-home orders and many dealerships are forced to keep showrooms shut. While the Federal Reserve’s interest-rate cuts are making it easier for automakers to dangle the deals, their lenders are still forgoing revenue they’d make in more normal times.

“I think 0% is an important tool in our toolbox and will continue to be offered for a while,” said Randy Parker, the vice president in charge of sales for Hyundai Motor Co.’s U.S. subsidiary. After other automakers offered no-interest financing, the company “wanted to remain competitive in the marketplace.”

Vehicles being sold with 0% financing graph

Hyundai’s U.S. sales fell 39% last month, while Toyota Motor Corp. and Honda Motor Co. both plunged by more than 50%. Through May 4, the South Korean carmaker is offering zero-interest financing for seven years on the Tucson crossover and Elantra sedan, and for six years on the Santa Fe sport-utility vehicle.

Toyota changed its incentive and marketing programs April 22 to better align with deals elsewhere in the industry, including offering 0% for five years on core vehicles such as the RAV4 SUV, Camry sedan and Tacoma midsize pickup.

But it has resisted offering terms longer than 60 months, viewing that as harmful to resale values and car buyers’ budgets. “We’re not into zero-for-84 months,” said Bob Carter, executive vice president for sales at Toyota Motor’s North American unit. “It’s not only not healthy for the industry, but also for the consumer.”

Even with all the discounts, April was a painful month. Edmunds estimates industrywide deliveries fell 53% from a year ago, the worst month in at least three decades.

“April is likely the bottom for auto sales, so hopefully there’s only room for improvement from here,” Edmunds analyst Jessica Caldwell said in a statement. “Although automakers are doing their part by offering landmark incentives, those might not be enough if consumers cannot recover financially from this crisis.”

Melinda Grenier contributed to this report.

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