Faced with sluggish new-car sales late last summer, General Motors Acceptance Corp. lured consumers to GM dealer showrooms with a special low-interest financing program that produced reported record volume over a two-month period.
With the recession and high interest rates further depressing industry sales, GMAC is promoting a similar program in which new-car buyers are being offered 12.8 percent financing packages.
The 60-day special program, which ends May 31, has resulted in a "positive response" thus far from dealers and consumers, according to GMAC.
The program may be a good deal for consumers, concedes Bill Cairns, president of a Marlow Heights Pontiac dealership, but he says he is irritated by it.
Admittedly alone in his criticism of the program, Cairns calls it a gimmick that penalizes dealers who participate in it. And he says that he's participating only because "I'm forced to" for competitive reasons.
It doesn't require a calculator to figure the difference--and savings--between 12.8 percent financing available at one dealer and 16 percent being offered by a competitor. So Cairns goes along with the GMAC program after refusing to participate in a similar sales promotion pegged to 13.8 percent last August and September.
"Everybody's doing it," Cairns says. But, by doing it, he adds, "We're buying the money down." In other words, GM dealers who participate in the program must absorb a huge chunk of the cost of financing a new car, Cairns maintains. As a result, his additional costs are running about $300 a car, he estimates.
GMAC denies that the burden of the lower finance cost of new GM cars is absorbed by dealers. "The bulk of that is picked up by GMAC," a spokesman says. "What we have said is since there is no dealer participation [in providing funds for financing], we will give you 30 percent of his average finance charge participation, based on February 1982 business he did with GMAC," the spokesman explained.
In the current economic downturn, Cairns sells more than 100 units a month compared with more than 200 in rosier times. There is no way of making up for the added finance costs, he says, adding, "We probably will make no profit in April or May, or go a little bit in the red on gross profit."
Cairns accuses the automakers of coming up with gimmicks "to move automobiles to put people back to work. . . . I sell automobiles to make a profit, not to move them," he says. "I have 103 employes. They have families. If I don't sell, they don't eat.
"I think I've always been able to sell automobiles without gimmicks. The factories keep coming up with these gimmicks, and I don't like them."
Whether gimmicks are involved, consumers tend to believe that dealers pass on added costs to customers in one form or another. Cairns believes "you insult the intelligence of the American people" by using gimmicks to sell cars. "Somebody is paying the difference between 16 1/2 and 12.8 percent."
GMAC financed close to half a million new cars through its low-interest-rate program in which 95 percent of GM dealers participated last August and September, said an official of the insurance organization.
But Cairns refused to participate then, and although "everybody totally agreed with me, nobody had the guts to say anything," he says, referring to competitors. Cairns maintains, nevertheless, that he had a good year "without the gimmicks."
Although the program "worked for us," it "penalizes you in some cases," acknowledges Dan Franklin, general manager at Curtis Chevrolet in Northwest Washington near Silver Spring.
In a typical arrangement, when commercial banks were more active in financing cars, they would allow a discount on interest paid by a dealer for funds to finance new cars. The latter, in turn, would add a percentage point to the interest to be paid by a customer. In that type of arrangement, a dealer could earn $100 to $200 on his finance reserve on each car he sold, Franklin explains.
Under GMAC's 12.8 percent financing program, the same dealer could make as little as $35 on each new automobile he sells, Franklin estimates.
Cairns is convinced that consumers are ready to buy cars again, but that the key to increased sales is a reduction in prices at the factory.
Cairns took essentially the same position in testimony before a Senate subcommittee last fall. "There is no negotiation with the factory," he testified. "If they figure the car is going to cost x number of dollars to build, they figure their profit in there, and they make up an invoice, and we pay it.
"When we get the car, we can't do that. We have got to negotiate. If you don't like our price, you go next door, down the street, or around the corner. They don't have that negotiation problem."