The domestic auto industry`s new round of discount financing has touched off a massive buying wave as evidenced by a flood of consumers applying for low-cost loans on the purchase of 1985 model cars and trucks.
Workers at General Motors Acceptance Corp. offices have been swamped with loan applications, said GMAC spokesman John Andrews.
”The GMAC offices are going bananas. One of our 300 branch offices received 1,000 applications in one day,” Andrews said.
GM began offering 7.7 percent financing last Thursday and was followed by Ford Motor Co. at 7.7 percent and Chrysler Corp. at 7.5 percent.
”On Monday, typically our biggest day from the flow over the weekend, we received 61,000 applications for 7.7 percent financing,” Andrews said. ”By comparison, the previous Monday we received 44,000 applications.
”Then, on Tuesday, we got another 43,716 applications versus 21,806 the previous Tuesday. We`ve only been keeping track of the number of applications for the last 5 years, but in both cases those are records.
”Staffs are working overtime to keep up. The 7.7 percent program is attracting people beyond our expectations.”
An application means a customer has shopped for a car, chosen to finance it through the automaker`s financing subsidiary, and the paperwork has then been forwarded for GMAC approval. Typically there isn`t 100 percent approval. ”But the whole idea of 7.7 percent is to help the dealers, so we aren`t out to reject the application unless the person is overextended,” Andrews said.
”We`ve had some good years since 1981, and financing rates help, there`s no question about it. As a stimulant on the market, discount rates are more effective than cash-bonus programs.”
Ford began offering 7.7 percent financing Monday and Chrysler 7.5 percent financing Tuesday. Ford also offers cash allowances ranging from $400 to $1,000 as an alternative to discount financing. Chrysler offers $400 to $1,500 cash allowances.
Both Ford and Chrysler said it was too early for firm numbers yet, but Ford said it expects a 75 percent increase in loan applications under its financing program. Chrysler said first-day applications ”rose dramatically” but would not reveal a number.
While Chrysler is credited with launching the rebate approach to selling cars (”Buy a car, get a check”), GM started the discount financing method in 1981.
Interest rates were soaring when on July 28, 1981, GM began offering 13.8 percent financing on its full line of cars.
”At the time, the going rate at GMAC was 18.6 percent, and when we went to 13.8–nearly 5 percentage points less–we set the market in turmoil,”
Andrews said. ”Until 7.7, that was our best (incentive) program in history.” Since 1981, the industry has offered at least a dozen discount-loan rates before reaching 7.5 to 7.7 percent, the lowest in history.
The program won`t hurt each automaker`s financing subsidiary profit outlook, either.
In the first six months of this year GMAC earned $465.2 million, up 9 percent from $426.1 million in the year-earlier period. GMAC`s record year was 1983, during which it earned more than $1 billion.
