It has always been said that automotive sales are a leading indicator of the nation’s economy. Last month, I attended the National Auto Dealer Convention in New Orleans. My sense is that the automotive industry is coming back to pre-recession levels and the car manufacturers and dealership vendors are excited. What this means for you is that there are many economic factors that really favor the consumer right now. The top three factors are interest rates, used car values and new inventory supply.
In the current market, there are many banks, credit unions and manufacturer’s financing subsidiaries (e.g. Ford Motor Credit) very willing to offer great interest rates for new and used vehicle purchases. The financing institutions currently have a lot of cash accumulated from reserves and deposits and are eager to loan. What this means for you, the consumer, is that interest rates can be as low as zero percent for 60 months for new vehicles depending on your credit rating and risk profile. Currently, there are even some manufacturer financing subsidiaries offering zero percent in addition to Customer Cash Back Incentives, which effectively nets the interest rate to below zero percent. Obviously, only the manufacturer and its financing subsidiary can offer these rates below zero percent to provide incentive and attract the buyer. The interest rates from other financing institutions like banks and credit unions can also be very low since they still have to compete in this market. Banks and credit unions can be a great source of low interest rate financing for used vehicles. If a used vehicle qualifies as a “Certified Pre Owned Vehicle” from the manufacturer, the interest rates can be even more competitive from the manufacturer’s financing subsidiary. Because the financing market is so competitive, consumers with a below average credit rating can also benefit. Many existing consumer loans have interest rates above the current market. This may create an opportunity to get a newer vehicle at the same or lower payment. Financing institutions are finally loosening their lending standards in an effort to capture and compete for customers, even if their credit profile is below average. This interest rate factor allows for a buyer’s market.
At this time, used car values are at a very high premium. This is because of low supply and high demand, as consumers are keeping their vehicles longer due in part to the economic downturn and also the fact that vehicles are now lasting longer. The consumer benefits by receiving a higher trade in value, which can lower the consumer’s payment on a newer vehicle. Even though manufacturers are beginning to lease more vehicles, which will help minimize the vehicle shortage, used vehicle values still favor the consumer.
The third factor to consider is new inventory supply. Manufacturers are offering sizeable rebates to increase sales. The landscape for new vehicle manufacturers is as competitive as ever. Today’s consumer demands and expectations force manufacturers to build newer models with a quicker turnaround. In the past, a vehicle’s model may not change for several years before a major refreshing. New technology and safety standards are creating this push and manufacturers failing to respond are quickly being left behind. Manufacturers often use rebates to move out aged inventory and/or to make room for newer models or meet prior production commitments. Manufacturers are always concerned about growing their market share and may use rebates to assist. Rebates can also be used as a consumer’s down payment, which in turn assists with improved financing ratios and better interest rates. Manufacturer rebates can really benefit a buyer with a below-average credit rating.
The above three factors occurring simultaneously has increased the automotive sales environment. Knowing your credit score, your trade in vehicle value and the manufacturer’s current rebates will help you make the best deal on your next vehicle purchase. Your dealer should be transparent and provide you the information to compare your findings. FBN
Alan Chan is the owner/dealer at Babbitt Ford Lincoln in Downtown Flagstaff. He presents a unique dealership viewpoint because of his background as a mechanical engineer, MBA, former CPA and financial advisor. Babbitt Ford is one of the oldest Ford Dealerships in the nation. Alan continues the Babbitt Ford tradition established in 1912 offering outstanding customer value and customer service. He has been with the dealership for more than 25 years. Alan can be reached at alanchan@babbitt-ford.com or 928-774-5063.