How 2019 Interest Rate Cuts Can Affect Tier III Dealership Sales

October 29, 2019 / For the Manager / 0 Comments /
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Car shoppers are feeling the crush of rising new vehicle prices, a fact that can hurt your dealership’s bottom line.


But there’s good news: Recent cuts to the Federal Reserve’s benchmark interest rate may nudge some customers back into the market. For them, the interest rate cuts translate to lower payments when they finance their new car. For you, it means lower floor-planning costs and some relief as buyers recognize and embrace the lower rates.


And while the cuts aren’t dramatic and aren’t likely to spawn an actual sales revival, auto dealerships are operating with a narrow margin in which every cent carries a lot of weight. So, every single customer who is encouraged by the promise of even marginally lower interest rates stands to boost your business.


Payments Matter

The fact is, buyers are often more driven by their monthly payments than they are by the overall price of the vehicle they’re looking to buy. That means that interest rates matter – a lot. And while you can tout all the specials, discounts, and enticing offers you want, your customers are motivated most by what they will be paying on their auto loan each month.


Even slightly lower payments are tempting for consumers, and dealerships should take note of that as they plan their sales strategies. Marketing messages that highlight lower rates and attractive monthly payments will likely capture their attention.


Factoring in Finance Companies

There’s another perk connected to the Federal Reserve’s benchmark rate cuts. Lower rates could spark renewed efforts on the part of finance companies to attract buyers. One effective way they do this is by offering 0% financing deals that easily catch the attention of value-seeking car shoppers.


Cutting Floor-Plan Costs

It’s not all about benefiting consumers – your dealership stands to benefit as well. Operational costs may undergo significant decreases with these benchmark cuts. According to Daryl Kenningham, president of U.S. operations for Group 1 Automotive Inc., higher rates before the cuts resulted in $1.5 million more per month in floor-planning expenses.


Put Marketing Magic to Good Use

There are a number of solid reasons that your business continues to thrive even when market conditions aren’t ideal. You don’t let the numbers you have no control over – rising new vehicle prices and interest rates – make or break you. You rely on full-scale, year-round marketing that keeps your dealership at the forefront of potential customers’ minds all the time. You use smart strategies encompassing direct mail, digital platforms, and media to target the right people at the right time with just the right message.


Maintain these efforts, and your dealership will continue to attract car buyers regardless of what ups and downs are occurring in the automotive market at large.

About the author

John Paul Strong: As owner and CEO of Strong Automotive Merchandising, John Paul Strong brings more than two decades of advertising experience to the table. He is the author of Next Day Traffic and leader of 115+ employees servicing more than 250 clients across the country. In 2018, John Paul was listed in the Birmingham Business Journal's Top CEO Awards and 2013's Top 40 Under 40.


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