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Come-Ons Include Computer Networks, Equity Loans, Free Tickets

May 16, 1988

DETROIT (AP) _ A growing pack of sellers for every car buyer has auto finance companies elbowing for advantage.

Among the strategies being employed by the Big Three automakers are speedy loan approvals via computer and special incentives for new buyers, such as college students.

Home equity loans, popular for home improvements, are being offered to improve a house the auto company’s way - parking a new car in front of it.

And in some cases, loan terms are being extended, with one European company offering a 10-year financing plan.

″Financing and pricing are the name of the game for about five years,″ said Charles L. Shillingburg, analyst with the auto market research firm of J.D. Power and Associates.

General Motors dealers are among those installing computers to get quick loan reviews from their credit subsidiaries.

″You almost get an instantaneous response - the dealer does - from us,″ said John Andrews, a spokesman for General Motors Acceptance Corp., GM’s financing arm.

The system spits back approval or disapproval, and alternatives such as different terms for different length loans, or lease possibilities.

″I think it makes a lot of difference. You’ve got a customer on the premises. The dealer has given his best sales pitch. You strike while the iron is hot,″ Andrews said.

Ford Motor Credit Corp. is about halfway to its goal of installing computers in 3,000 dealerships, said executive vice president Don Cook.

For homeowners, GMAC says it will make credit available based on customers’ home equity. Interest on such a loan is tax deductible, subject to restrictions relating to the original cost of the home and improvements that have been made, said Sarah Wreford, Internal Revenue Service spokeswoman in Detroit.

Chrysler Credit is trying home equity loans on a test basis but adoption is uncertain and numbers are ″really negligible at this point,″ spokesman Bob Heath said.

The financing scramble can only intensify, said analyst Shillingburg. With Japanese makers stepping up U.S. production and other manufacturers entering the market, the number of car models available in the United States is expected to increase from the 163 available in 1985 to as many as 235 in 1992, Shillingburg said, predicting Japanese companies will form credit subsidiaries.

But the population only grows about 2 percent a year, and the number of people owning three or more cars cannot be expected to increase greatly, Shillingburg said.

The market’s maturity is one reason the Big Three are targeting the college crowd to attract new buyers. GMAC, for example, is offering graduates $400 in addition to rebates a model already carries, and up to 90-day deferral of first payments.

Cut-rate interest promotions are fading somewhat, because of the cost to companies of absorbing the difference between low promotional rates and the going rates for capital. But the impact of those programs has ″set up a scenario of continuing promotions,″ Shillingburg said.

European makers, fighting price penalties that increased with the falling dollar, are adopting that approach to push back into the market. Peugeot Motors of America offered a $3,000 trade-in allowance for Peugeot owners buying new 1988 Peugeot 505 models. In March, the company expanded the offer to anyone owning or leasing any make of vehicle.

Volvo announced in February it was cooperating with Chase Manhattan Bank in New York to offer up to 10-year financing through Volvo dealers, at rates from 11.25 percent to 12 percent, depending on locality.

By Tuesday, there were still only about 100 takers on the 10-year loans, Volvo spokesman Bob Austin said.

Austin said they are designed for buyers wanting to keep monthly payments down, though they’ll pay substantially higher total interest over the term of the loan. A buyer might plan to make the lower payments for a time and then sell the car for enough to pay off the remainder of the loan, which carries no prepayment penalty, Austin said.

Mercedes Benz Credit Corp., headquartered in Norwalk, Conn., began a program of no-down-payment, four- and five-year leases in the last week of March, Mercedes spokesman A.B. Shuman said in New York.

More dramatic are the free round-trip Lufthansa or Pan Am airline tickets to Stuttgart that Mercedes offers buyers who take European delivery of their cars.

That offer is an attempt to revive the European delivery program that dropped from 2,080 overseas deliveries in 1986 to 914 in 1987 as terrorist scares cut tourism, Shuman said.

The customer pays a 2 1/2 percent import duty, but tax, currency exchange and other savings can amount to $3,000 to $8,000, depending on the model, Shuman said.

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