Many automotive analysts have projected a decrease in the number of cars sold this year. The primary reason given for this was the fear of rising interest rates, monthly payments, and overall car prices. It turns out they were right on the money as Experian’s State of Auto Finance Report revealed that all financial aspects of the car buying experience are at record highs.
- The average new vehicle loan amount hit a record high of $31,455 in the first quarter of 2018.
- Monthly payments for new vehicles are now $523.
- The average interest rate for a new car is 5.17 percent, according to Experian, this is an increase of 31 basis points compared to last year.
- Car loan lengths are now an average of 69 months, and total automotive loan balances are now a record $1.108 trillion.
Everything points to a slowing down of new car purchases as well as consumer caution. What can dealers do to help consumers navigate through this landscape and maintain a profit? Read on for our tips.
Include Payment Calculators on Your Site, and Encourage Their Use
In the past, consumers may have thought to bypass this step and go right to navigating to the car of their dreams. However, the payment calculator should be one of the first things potential car buyers use to determine the vehicle they can afford. Whether speaking to a customer on the phone, emailing with them, or welcoming them into the stop, staff should ask them if they have used their pricing calculator. If they have not, dealership team members can help by navigating them to this tool.
Ask as Many Questions about Their Budget as Possible
Before showing a car, dealership staff should sit down with consumers and ask them as much about their budget as possible. What overall pricing are they comfortable with? What would be the ideal monthly payment? What is their credit situation? How long do they feel comfortable paying for a loan? All of these factors should come into play when selecting a car to show them. This way customers can feel secure in knowing that they are seeing an affordable vehicle that meets their parameters.
Don’t Forget Used Vehicles
It is ideal for dealerships to get their newest cars off the lot as soon as possible, but in a world where interest rates and car prices are rising used cars are going to become much more of a reality. Even if a customer has a preference for a new car, showing them a gently used car might not only be better for their budget, but it could prevent delinquency later down the line. So, keep desirable, and newer used cars on the list when showing off vehicles.
Encourage the Use of Extended Warranty Agreements
This is a win-win for both dealerships and the customers. Many dealers are wondering how to increase profits as it is likely these higher prices will lead to smaller margins. An extended warranty can bring in extra profits while also providing savings to customers in the long-run. According to a Protective Asset Protection survey, 42 percent of respondents estimated that their protection plans saved them an average of $1,000 to $2,000 on parts and repairs. Give consumers a cost breakdown of how a vehicle service contract can save them money as they take care of the maintenance of their car.
Urge Customer to Trade-In Their Current Vehicle
To save money on the total cost of the new vehicle, remind customers that they can trade in their current vehicle and contribute that amount to the new car. Find out the make, model, mileage, and condition of the car before they bring it in to give them an estimate of how much they can expect to receive for it. Even if it is only a few thousand dollars, it can significantly reduce the overall price and in turn the monthly payment.
The Wrap Up
It does look as if 2018 will continue to bring rising prices and interest rates. This will probably scare off a good number of potential car buyers who were interested in purchasing a new vehicle. However, dealers need to be sure they market tactics like the ones above to let consumers know that even in a more expensive market, they can help them purchase a vehicle without breaking the bank.
