Zero-percent auto loan deals are vanishing

Carmakers that used zero-percent financing offers to juice sales at the height of the American auto boom are starting to abandon them as rising interest rates lift their own borrowing costs.

The average interest rate on consumers’ new-car loans climbed to 5.7 percent in March, the highest since 2009 and up from 5 percent a year ago, according to Edmunds. Zero-percent offers fell to 7.4 percent of auto loans last month, down from more than 11 percent the prior year and the lowest share in more than two years, the car-market researcher said.

“Nobody wants to be the first one to go from zero to 0.9 percent, or from 0.9 percent to 1.9 percent, but you’re going to see zero no longer be the norm,” Jim Lentz, the chief executive officer of Toyota’s North American operations, said in an interview at the New York auto show last week. “That has to be pushed along. That will impact, marginally, some people getting pushed out of the market.”

Car manufacturers that took advantage of near-zero benchmark rates to cheaply lure buyers into showrooms now have to look to other tools in their battle for market share, such as cash incentives or discounted lease payments to draw buyers within a shrinking market. J.D. Power estimates car companies were offering discounts of more than 10 percent off suggested retail prices as of mid-March.

The Federal Reserve raised interest rates last month for the sixth time since it began tightening monetary policy in December 2015, lifting the benchmark range to between 1.5 and 1.75 percent.