General Motors Corp. (NYSE: GM | GM Price Prediction) has started to offer 0% annual percentage rate (APR) financing for 84 months for cars and trucks sold at its big Chevy division. The question is, do people want to own a vehicle for seven years? If not, the deal has little value.
Chevy offers an alternative, which is a deferred payment, with the right credit score, for 120 days. The pandemic could be at its worst four months from now, which is the risk buyers make if they take either deal.
The Chevy financial offers are an acknowledgment that car sales are off 50% and a planned recovery may not return. Manufacturers hope sales will shift toward their normal pace toward the end of the year.
GM’s recent financial report was hellacious. The company has had to cut its dividend and do what it can to improve its cash position. Those plans won’t help much if buying activity remains deeply depressed for the rest of 2020.
One fact that works against GM and all other manufacturers is that the average age of cars on the road last year topped 11 years. Car quality is so good that many buyers can keep their cars several more years and not step inside a dealership.
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Eric Lyman, chief analyst at TrueCar, told AARP, “The average lifespan [of a car] is now almost 12 years. It’s been a slow and steady climb over the past decades.”
Car companies can offer discounts and financing that are better than at any time in history. Yet, the buyers won’t be back when the pandemic stops its rapid spread. After that, many car buyers simply won’t have the money.
The car industry is mortally crippled in some cases. It is only a matter of time for some before their cash runs out.
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