It’s getting harder to find those zero-percent financing deals on new cars

Daniel Acker | Bloomberg | Getty Images
A General Motors dealership in La Salle, Illinois.

With inventories in a more healthy place and nationwide interest rates ticking up, a report from Edmunds shows that zero-percent finance deals accounted for the smallest portion of July auto sales in over 10 years.

The report shows these deals accounted for just 6.92 percent of new car deals in July. That's a significant drop off from last year's 11.34 percent, or 11.18 percent 5 years ago, representing the lowest proportion of deals since 2005.

“It's definitely much less pervasive than it's been in the past,” Jeremy Acevedo, Edmunds' manager of industry analysis, told CNBC. “We're seeing levels that are a little more than half of what they were last July.”

Automakers have a good inventory mix of in-demand vehicles that don't require heavy incentives to sell, Acevedo said. You can still get zero-percent deals on less desirable vehicles — sedans in particular — but the automakers aren't as weighed down with previous-model-year vehicles this year.

Additionally, zero-percent finance deals are becoming a less cost-effective way for automakers to drive deals. General Motors, which popularized the concept with their post-9/11 “Keep America Rolling” zero-percent financing, has been less aggressive with the practice this year.

“That's partly a function of rising interest rates, which makes it a little more expensive,” GM spokesman Jim Cain said.

It's still pretty widely used in the industry, but GM likes to keep a mix of different incentives in the industry, he said.

“The way we try to approach things is to make sure we have competitive lease deals, especially in markets like the Northeast and California where leasing is really possible,” Cain said. “And we have a simple and compelling message that's easy for our dealers to advertise and cuts through the clutter.”

For people looking to buy rather than lease, Cain says the company is focusing on direct discounts that make sense to the customer. Rather than differing interest rates for different terms and buyers, it's easier to effectively market a 10 percent discount.

“It's clear and compelling,” Cain said. “It's familiar, because that's how other retailers typically have their sales promotions.”

And while it's been a major part of the summer sell down for all three major American automakers since 2005, Acevedo isn't optimistic that zero-percent financing offers will be commonplace in the future.

“It doesn't look like APRs are going down any time soon,” he said. According to the report, the average annual percentage rate, or APR, in July was 5.74 percent, compared with 4.77 percent a year ago. Overall, interest rates are near their nine-year high.

Some automakers —Subaru, Mazda, Cadillac, and Lincoln were the ones Acevedo specifically noted — are making more interest-free deals than others. But if automakers can offload their 2018 inventories without having to offer zero-interest loans, Acevedo expects that to signal the end of widespread availability of these loans.

That, combined with ever-increasing APRs and epic term lengths, means Americans will likely continue to spend a rising proportion of their car budgets on financing alone. To Acevedo, that may spell long-term trouble for the automotive market.

“It definitely, to us, signals some caution lights to be aware of what's happening ahead,” he said.

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The Beating Heart: This Mazda prototype incorporates a Skyactiv-X engine within the body of a Mazda3, but the only way you’d know it is by the high fuel economy and the low tailpipe emissions.

There are lots of reasons why we’re not all driving electric vehicles now. You’ve probably thought of two or three already, but let me add one that I’m sure you haven’t. It’s a big obstacle to EVs, and it’s rarely remarked upon.

It’s the internal combustion engine, which is no sitting duck. It’s a moving target, and a fast-moving one at that.

There’s no better example of this agile, relentless progress than Mazda’s Spark Controlled Compression Ignition (SPCCI) system, which is scheduled to reach the car-buying public in the form of a new combustion engine in late 2019. Mazda borrowed a trick from the diesel engine, which compresses a fuel-air mixture to the point of ignition rather than igniting it with a spark plug, as gasoline engines do. It’s the biggest advance in combustion engines since electronic fuel injection, which started proliferating in the 1970s.

The new engine operates under some conditions with compression ignition, like a diesel engine, and at other times with spark ignition, like a standard gasoline engine. It will sell under the name Skyactiv-X, building on Mazda’s current engine design, known as Skyactiv-G (G is for gasoline). “We’ve dubbed it Skyactiv-X because it is kind of the intersection of gasoline and diesel technologies,” said Mazda power-train engineer Jay Chen, in a press briefing.

Mazda claims that the 2.0-liter four-cylinder Skyactiv-X provides from 10 to 30 percent more torque and from 20 to 30 percent better fuel efficiency than the Skyactiv-G. So, using the 2.0-L Skyactiv-G as the reference, figure on torque somewhere between 224 and 264 newton meters (165 to 195 foot-pounds) for the Skyactiv-X. If you put it in the Mazda3, a compact car, and assume it has only a minimal hybrid-electric design, then its fuel economy should come to between 6.36 and 5.88 liters per 100 kilometers (37 and 40 miles per gallon). Mazda has not yet announced which model will debut Skyactiv-X.

True, an all-electric car posts better numbers. The U.S. Environmental Protection Agency gives the Chevrolet Bolt EV the e-car equivalent of 119 mpg (1.98 L/100 km). On the other hand, the Bolt will go just 383 km (238 miles) on a charge, while the Mazda3, using today’s Skyactiv-G engine, can manage 785 km (488 miles) on a tank of gas.

“The biggest thing I believe Skyactiv-X does is demonstrate that the internal combustion engine is not dead and that EVs are not a shoo-in,” says George Peterson, president of industry consultancy AutoPacific. “There’s a lot of life left in internal combustion power trains until cost and range issues with EVs are solved.”

To understand how SPCCI works, start with the fundamentals of ignition in the three kinds of combustion engine—the diesel engine, the standard gasoline engine, and the immediate forerunner to the SPCCI, called the homogeneous charge compression ignition (HCCI) engine.

In ideal combustion, each hydrocarbon molecule is paired with an oxygen molecule, producing water and carbon dioxide. The molecules are present in the chemically correct ratio that engineers describe as lambda 1. In a lean fuel condition, when there’s more oxygen, lambda is greater than 1. That’s good when the goal is to reduce fuel consumption. And, because such lean combustion mixtures burn cooler than those at lambda 1, they produce less nitrogen oxide pollution.

However, it’s not always easy to get that lean mixture to burn. “The less and less fuel you have in a mixture, the harder and harder it gets to ignite,” Chen explains. “Just like lighting your barbecue without enough lighter fluid.”

The solution, employed in both HCCI and SPCCI engines, is to keep compressing the air-fuel mixture until it is so hot and under so much pressure that it detonates spontaneously. Diesel engines also use such compression ignition, but they first compress pure air into the combustion chamber, then inject the diesel fuel. Only then does the fuel burst into flame.

This sequence is important because the fire starts at the spot where the fuel is injected and spreads to the rest of the combustion chamber. High temperatures in this expanding flame front cause diesel’s characteristic emission of soot particles and nitrogen oxides.

In HCCI combustion, air and fuel mix together in the cylinder during the compression stroke and spread homogeneously throughout the combustion chamber, as they would in a direct-injected gasoline engine. Only after that spreading and mixing are they compressed to the point of autoignition, as in a diesel engine.

So, in a traditional gasoline engine, combustion begins at the spark plug; in a diesel, it begins at the fuel injector; and in an HCCI engine it happens in all parts of the combustion chamber at once. That makes for an intense explosive reaction, one that puts more downward force on the piston during the engine’s power stroke than the other two engine types do. Gasoline and diesel engines both must light the fuel while the piston is still moving upward on the compression stroke, achieving peak cylinder pressure while the piston is close to the top of its stroke.

“That means the piston is still moving up, already building pressure,” says Chen. “The piston has to fight against the current, if you will, of the pressure.”

“If we did compression ignition, it happens over such a short period of time, we can actually target the peak of the pressure right after top dead center of the piston,” Chen continues, using the industry term for the point when the volume of the cylinder is at an absolute minimum. That way, “all the energy is released immediately, and bam!—the piston just pushes down with the greatest amount of force. For the same amount of fuel, we can get a much higher pressure out of our combustion process through compression ignition than we can through traditional spark ignition.”

To make it work, HCCI engines need to run at a very high compression ratio, just as diesel engines do. According to Sandia National Laboratories, one of the few outside sources that gives numbers, HCCI engines typically run at compression ratios as high as 14:1. Conventional turbocharged gasoline engines commonly run at around 10:1, while diesels, such as the familiar Cummins 5.9-L turbo diesel installed in Ram pickups, run at 17.2:1.

However, HCCI engines can’t always time that spontaneous explosion so that it happens just after the piston passes top dead center in its stroke and begins moving downward on its power stroke. They simply can’t be designed to exert such precise control, because they’re harnessing highly exothermic chemical reactions that behave chaotically, in a fast-changing environment.

As Chen puts it, “Whenever the air and the fuel inside the cylinder reaches a critical temperature and pressure, it’s just going to go boom.”

Because HCCI combustion is possible under only the right conditions of load and engine speed, HCCI engines need spark plugs to let them run in conventional, spark-ignition mode as well. And here is where the challenges begin. In an HCCI engine, compression ignition is spontaneous, so it is difficult to know exactly when the cylinder’s air and fuel mixture will ignite. If that rapid, forceful combustion that we prize so much during the power stroke occurs too early, while the piston is still rising for the compression stroke, catastrophic engine damage could occur. But variations in engine load, throttle position, and temperature make it difficult to rule out such premature ignition if some combination of those factors suddenly creates a compression ratio high enough for compression ignition.

Mazda finesses the problem by having the engine initially give just a very small squirt of fuel. That trick ensures that the mixture is so lean, regardless of conditions, that it will never preignite. “Then, during the compression stroke, we give a larger injection of fuel, under higher pressures. That atomizes, but it doesn’t have the same amount of time to heat up. In that way, it doesn’t have enough time to reach the autoignition temperature threshold,” explains Chen.

How, then, to get this lean mixture to light at the most opportune moment in the cycle? Mazda’s creative solution to this problem is to build its SPCCI engines with a compression ratio of about 16:1—just below the threshold for compression ignition in this engine.

The earlier, HCCI engines needed a spark plug for conventional operation when the temperature, engine load, throttle position, and rpms were unsuitable for compression ignition. But Mazda’s engineers realized that by manipulating conditions within the compression chamber, they could use that spark plug to ignite a local fire within the chamber. The expanding flame front increases pressure throughout the combustion chamber, effectively raising the compression ratio high enough to trigger ignition in all parts of the chamber at once.

That left the lighter-fluid problem: How do you light that compression-enhancing fireball in a fuel mixture that’s too lean to catch fire? Mazda’s solution is to create a region near the spark plug that’s just a bit too lean to catch fire by compression alone. The spark can then set off a fireball whose expansion will boost pressure throughout the cylinder and cause compression ignition. In other words, the spark doesn’t so much light the fire as help the fire to light itself.

Creating such a local less-lean zone isn’t easy. “We can’t just put fuel in and make it slightly less lean, because it will just mix with [everything else in the chamber],” Chen notes. “In order to cordon off this region of slightly less lea..