By Justin Hyde
DETROIT, March 31 (Reuters) - General Motors Corp. on Monday launched its most aggressive incentive program ever, offering zero-percent loans of up to five years on almost every model in a bid to jump-start sluggish U.S. auto sales.
The offers, which are even broader than the plan GM launched after the Sept. 11 attacks, comes as the U.S. auto industry faces the prospect of lower than expected sales during its key spring season, thanks to the war in Iraq and a weak economy on the home front that has cut down on the number of people looking for new vehicles.
But GM said consumer confidence that had hit decade lows prior to the launch of the Iraq war appeared to be rebounding a bit.
"People's perceptions have settled in somewhat in regards to the conflict in Iraq and what it means to them," said John Smith, GM's group vice president of North American sales, service and marketing, in an interview with Reuters. "We see consumers' state of mind at being at a place to be receptive to a strong offer."
GM said its new deals included every model in its lineup except its low-volume Hummer sport utility vehicles. In lieu of the loan offers, GM is offering a $3,000 rebate on most models, with four models getting a $2,000 rebate.
Auto sales, which account for roughly a fifth of all U.S. retail sales, have been one of the few bright spots in the economy over the past year. Automakers had been able to keep customers interested with an ever richer mix of loan deals and cash rebates, but had seen consumer interest wane in recent months as worries about the economy and war mounted.
HAS LED THE INDUSTRY
GM has led the industry in incentives for the past year, and spent an average of $3,085 per vehicle in February. Despite the offers, its inventories of unsold vehicles swelled to an 88 days' supply, some 20 percent above normal.
CNW Marketing Research analyst Art Spinella said the new interest-free loans could cost GM an average of about $4,200 per vehicle for five years. But he said his recent surveys had shown consumers might be receptive to such offers.
"Will that turns to sales? Maybe, maybe not, but the incentives certainly are going to help the consumer come back," Spinella said.
GM and Ford Motor Co. have already announced sharply lower second-quarter production, a move that many analysts said put their forecasts for all of 2003 in doubt. But Smith said GM was still expecting total sales of about 16.5 million vehicles.
"We believe the economic fundamentals support a business that can still run in the mid-16s for the whole year," he said. "A strong offer at this point in time is the right catalyst to get the industry up and running."
GM's launch of zero-percent loans after the 2001 attacks was followed in varying degrees by most competitors, pushing U.S. auto sales to their second-highest monthly rate ever. Despite the cost of the programs, and their toll on the prices of GM's vehicles, the automaker was able to grow its profits last year through cost cutting.
Ford, the only member of Detroit's Big Three who didn't make money selling cars in 2002, has been able to hold its prices more than GM or Chrysler. Both Ford and Chrysler are expected to announce new incentive programs over the next few days.