After 9/11 there was a large push to prove our economy wouldn't be driven to the ground by the attacks. The big three immediately came out with 0% financing. It worked. Cars began rolling off dealership floors like hotcakes. I know because I myself worked in Ford dealerships for 15 years and was in one at the time. In itself, the incentives were great for business. Granted, they were a gimmick, but they worked. Lets face reality, if I am to loan you $25k, I am not going to do it for free. So, while they were giving away "0% money", the price tags were going up on their cars in order to pay the banks. Therefore $25k became $30k and monthly payments went up accordingly.
When the Ford Taurus went from $14k to $18k for a comparably equipped model, it caused the import market to react. Although they weren't participating in the 0% game, Honda, Nissan and Toyota rose prices on their models to be on similar pricing levels with their domestic counterparts. By September of 2002, this market repricing had already been completed for the most part. In order to sell cars at these higher prices, auto finance specialists tailored 72 and 84 month loans compared to the standard 60 month loans of the 90s.
If Detroit had pulled this industry-wide change off for a few months, or even just one year, things could have gone back to business as usual and they would be fine today. However, they did not. The 0% game lasted into 2003. One might ask why this mattered. The problem is simply stated in laws of supply and demand. Everyone that could qualify, bought or leased something in 2001 - 2003. Then 2004 brought a new problem to Detroit. There was no longer the previously steady supply of consumers who needed to replace their 5 year old cars. What did Detroit do? A repeat performance of the 0% game in 2005.
Now, twice in one decade, Detroit has depleted the supply of consumers needing new vehicles. Dont believe it? Drive down any road in America and count how many cars over 10 years old you see. Not many. People just dont need a new car now. On top of that, they see that to replace the car they paid $20k for with a comparably equipped model, they now have to fork out $25k.
Based on these facts, Detroit has two options left on the table. The first, severely drop the price tags to bring people back in the showrooms. This idea is not very likely as it would now bankrupt all of the big three. Second, face the reality that they have already had their share for this decade and sit around waiting for 2011. To be sure, 2011 promises to bring a lot of people in that are looking to replace 10 year old vehicles.