In technical terms, TINSTAAFL. There is no such thing as a free lunch. It is true that all business costs are ultimately passed on to consumers (why business taxes are no more than a hidden tax on consumers). All forms of advertising expenses are rolled into the overall prices for everyone. Same reason some grocery stores can sell milk for $1 a gallon. Sure, they lose money on that gallon, but most people buy other stuff, too.
In practical terms, free financing is absolutely a thing. Will someone pay for it? Sure. Good credit is always required to get the best deals. Credit affects the price of your insurance, too. It is in the fine print, but 'on available credit' is the out. They legally cannot advertise a rate without a certain percentage actually getting it.
The way government regulations affect the lending industry, they need to keep a mix of credit in their overall loan portfolio. Many people with good credit can forgo a loan of they want. Lenders offer 0% to attract those high credit buyers to use credit. The lender loses money on those individuals, but makes up for it by having greater ability to loan more money to people with less than perfect credit. Simply put, if I make 100k loans to 2 people, I can loan one with 800+ credit at 0% and then can risk the guy with a 600 score at 10%. Effectively, I have 200k loaned out at 5%, but with the risk of a 700 score. I could just loan only to people with 700 scores, but a) that reduces my potential market and b) the government requires lenders to lend money to people they otherwise would not.
Right now, dealers are getting away with cash discounts. As the market tightens back up, people with excellent credit will get that discount and 0%. A little different in the auto finance world as dealerships can add in interest (usually up to 2% points). Even then, in a competitive market, excellent credit consumers will just walk. Ultimately, lenders need excellent credit customers more than vice versa.
So yes, in the aggregate it is not 'free'. If it is free to me, I am fine with them making up the difference on someone else.