Carmakers that used zero-percent financing offers to juice salesat the height of the American auto boom are starting to abandonthem as rising interest rates lift their own borrowingcosts.

The average interest rate on consumers' new-car loans climbed to5.7% in March, the highest since 2009 and up from 5% a year ago,according to Edmunds. Zero-percent offers fell to 7.4% of autoloans last month, down from more than 11% the prior year and thelowest share in more than two years, the car-market researchersaid.

“Nobody wants to be the first one to go from zero to 0.9%, orfrom 0.9% to 1.9%, but you're going to see zero no longer be thenorm,” Jim Lentz, the chief executive officer of Toyota MotorCorp.'s North American operations, said in an interview at the NewYork auto show last week. “That has to be pushed along. That willimpact, marginally, some people getting pushed out of themarket.”

Car manufacturers that took advantage of near-zero benchmarkrates to cheaply lure buyers into showrooms now have to look toother tools in their battle for market share. As those kinds offinancing deals fall off the table, automakers are leaning more oncash incentives or discounted lease payments to draw buyers withina shrinking market. J.D. Power estimates car companies wereoffering discounts of more than 10 percent off suggested retailprices as of mid-March.

Adios Zero
Toyota has already been reducing its zero-percent financing offers.They made up 13% of the Japanese carmaker's U.S. sales in February,the latest month for which data is available, down from 17% oneyear prior, Edmunds estimates.

The Federal Reserve raised interest rates last month for thesixth time since it began tightening monetary policy in December2015, lifting the benchmark policy target range to between 1.5% and1.75%.

“It's hard to support zero financing in this type ofenvironment,” Henio Arcangeli Jr., Honda Motor Co.'s top U.S. salesexecutive, said last week in an interview at Bloomberg Newsheadquarters in New York. “It's very expensive.”

While tightening credit and rising average vehicle costs areexpected to weigh on new-car sales this year, automakers didn'tfeel much of the pinch in March. Several major manufacturerstrounced analysts' estimates, with Fiat Chrysler Automobiles NV andGeneral Motors Co. riding booming sport utility vehicle demand tobigger-than-expected U.S. sales gains.

Arcangeli said Honda — which is known for keeping its incentiveslow — isn't offering zero-percent financing, and he expects rivalswill soon follow suit. “The companies that are at zero percent, oursense is they're going to start going from zero to 0.9,” he said.“But there's a lot of things that have surprised us already —they've held on for so long.”