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ZEROING IN ON 0% LOANS <br> LOW-COST FINANCING ON NEW CARS HURTS USED-CAR SALES

When showroom traffic plummeted after Sept. 11, the Big Three U.S. automakers offered zero-percent financing on a range of vehicles to revive enthusiasm.

Good news for shoppers. Bad news for used-car dealers like Joel Pollina.

With the Big Three offering no-interest loans on nearly all of their new models, it's tougher for higher-priced used vehicles on his Ultimate Auto Sales lot in Depew to go head-to-head with monthly payments on a brand-new model.

New-vehicle sales were slumping nationwide before the terrorist attacks and worsened in the days following the disasters. Zero-percent financing has sparked a resurgence in new-vehicle sales, drawing some customers who had been searching for bargains in used-car lots.

Pollina is shying away from stocking his lot with higher-priced used vehicles such as 1997 Grand Ams and Neons that he would sell for $7,000 to $8,000. A shopper can pick up a brand-new vehicle with monthly payments that aren't much higher, he said.

"(Zero percent) almost kills that end of the market," he said.

Pollina has altered his lot's inventory. He's focused on obtaining lower-priced cars, such as 1995 and 1996 Corsicas, Cavaliers and Neons, that he can sell for $3,000 to $4,000. But finding those types of cars in good condition isn't easy, he said.

Before Sept. 11, new-vehicle sales nationwide were on track to finish below 2000's record total. Meanwhile, used car sales were climbing in a "teeter-totter effect." Many buyers were drawn to fairly new used vehicles coming off two- and three-year leases.

The terrorist attacks dealt a blow to consumer confidence, prompting the U.S. automakers in late September to offer zero-percent financing to pump up sales. The savings can be significant: for instance, on a $20,000, 60-month loan with a 7.5 percent interest rate, a car buyer would pay about $400 a month. That drops to $333 a month with zero-percent financing.

Kevin Campbell, president of Glen Campbell Chevrolet-Oldsmobile in Williamsville, which sells both new and used vehicles, said his dealership's used-car inventory is somewhat higher as a result of
the increased interest in new vehicles.

Campbell said it's not unusual for shoppers to focus more on new vehicles when the incentives are especially attractive. "It's not as though this is the first time this has ever happened," he said.

Consumers might feel the impact of higher used-car inventories in another way: lower trade-in prices on their own used cars.

But Campbell said trade-in price still depends on the demand for or the availability of the type of car someone trades in.

Local auto sales figures for October, which aren't yet available, should offer a clearer picture of zero-percent financing's impact, since it's the first full month when the incentive was offered.

In September, new-vehicle sales at Buffalo Niagara franchised dealers fell 16 percent from the same month a year earlier, according to the Niagara Frontier Automobile Dealers Association. Used-car sales rose 14 percent during the same period. The September data reflect both the drop-off many dealers felt after the terrorist attacks and the spike in business spurred by zero-percent financing.

Through the first nine months of the year, local franchised dealers' new-vehicle sales fell 9.5 percent from the same period in 2000, while their used car sales increased 12 percent. However, they still sold more than five times as many new vehicles as used vehicles.

John Woodruff, general manager of Emerling Ford in Springville, said he expects many shoppers will return to the used-car market once the zero-percent incentives expire.

In many cases, he said, they'll find a huge selection to choose from. But he said in his dealership's case, both used and new vehicle sales have maintained a strong pace.

"I couldn't be happier," he said.

While Remarketing Services of America in Amherst manages the sale or re-lease of off-lease vehicles for its clients, the company says the rush to new vehicles is good for the auto industry as a whole.

"Zero-percent financing has gotten people out of their homes and into the market," said Eric Kagan, RSA's chief operating officer. The company's clients include major banks and auto companies' credit units.

Some of the people drawn to showrooms by the incentives will end up buying used cars, he said. In some cases, they might not qualify for zero-percent financing or find that the monthly payment for a new car is still more than they can afford.

Used-car dealers might take solace in the fact that Ford and Chrysler plan to drop their zero-percent financing offers at the end of this month, while General Motors has extended its program until Nov. 18.

Even so, Pollina said, the incentives will disappear just as the slower season for car shopping begins. "That's going to make for a long winter for used car dealers," Pollina said.

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