When the U.S. economy was engulfed in a recessionary downturn in 2007, the automotive industry reacted in a very positive and consumer-friendly manner... Interest rates were reduced! In fact, in an effort to stimulate the struggling economy, 0.0% financing became the prevailing marketing cry among the automotive financing captives.
Since those dark days of the late 2000s and the cliff-dive of new vehicle sales in the U.S., the economy has brightened. Annual new vehicle sales have rebounded back to the 17 million unit levels faster than any of the industry economists predicted. Life in the automotive world is good again!
However, has the industry set itself up for a rude awakening? We have seen U.S. unemployment rates drop, consumer confidence has stabilized and the economic climate is booming. And all along, the auto industry has continued to waive the 0.0% financing and cash incentive flags. But what’s next?
We all know that this industry is cyclical, and that the economy cannot grow forever! But over the past 7 or 8 years, as the economy around us has recovered, automotive interest rates have not kept pace. The American consumer has been conditioned that free financing is the norm. So when we experience the next downturn, and we all know that day will come, how can this industry react? What is left to stimulate consumers? Zero percent is the floor!
The kicking of this can any further down the road is just prolonging the inevitable. Believe it or not, near-term consumer interest rate increases will be good for our economy and for our industry.
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