Auto incentives are back — but high interest rates weaken deals for buyers

KEY POINTS

  • Incentives are coming back to the auto market, but interest rates remain high.
  • However, car shoppers can still reap the benefits. It will require more research and flexibility.
  • “Consumers can find good deals, but you have to go model by model,” said Brian Moody, executive editor at Kelley Blue Book.

Incentives are coming back to the auto market, but high interest rates are weakening those deals for car shoppers.

“Pre-pandemic, people would see a 0% financing for 60 months and think, ‘no big deal,’ because it was available everywhere,” said Jessica Caldwell, an insights analyst at Edmunds, an auto research site.

In today’s market, consumers are more likely to see it as “free money,” she said, especially as auto loan rates stay high.

The average annual percentage rate for a new car loan was 7.1% in the first quarter of 2024, marking the fifth month in a row of rates more than 7%, according to Edmunds.

The APR for used car loans rose 11.7% in the same period, up one-tenth of a percentage point from the prior quarter.

Despite high borrowing costs, car shoppers can still reap some benefits from reintroduced financing offers and other incentives like discounts and dealer cash. But shoppers must to do more research than in that earlier era to find those deals, experts say. 

“Consumers can find good deals, but you have to go model by model,” said Brian Moody, executive editor at Kelley Blue Book.

Be cautious about longer loan terms

Financing offers depend in part on the loan term. You might get a better interest rate with a short term, but a lower monthly payment with a long term.

While extending the life of the loan can help shrink monthly costs, you risk owing more than what the car is worth, which can create more financial problems later on, experts say.

“The negative equity situation is real,” Edmunds’ Caldwell said.

Shoppers must be realistic about how long they plan to keep the car, Caldwell explained.

If you’re someone who buys a new car every three to four years, you might end up in a situation when you trade in that your vehicle and is worth less than you owe, she said.

The share of new car purchases in that situation — known as a negative-equity trade-in — rose to 23.1% in the first quarter, according to Edmunds. That’s up from 18.3% from a year ago and 14.7% in the first quarter of 2022.

The average amount of negative equity jumped to an all-time high of $6,167 in the first quarter, researchers found.

When you roll that into your new car loan, it increases your payment.

The average monthly payment for new car shoppers who traded in underwater loans was $887 in the first quarter, according to Edmunds. The average APR was 8.1% for a term length of 75.8 months.

When you’re comparing financing options, instead of only focusing on lowering the monthly payment, be sure to figure out the total interest you will be paying, experts say.

“That’s where you have to be cognizant,” Caldwell said. “Longer loan terms will always look more attractive because they’re more affordable, but that’s really only part of the story.”

According to Moody: “The quicker you pay it off, the less interest you’re paying.”

What to do before you go to the auto dealer

1. Search for available incentives: Car shoppers will have to a do lot more shopping and research to find available incentives, Caldwell said.

“There are deals creeping out there,” she said. “There was a point two years ago where there just wasn’t any; no deals to be had.”

Seek out models that are not in high demand, as automakers and dealers “rarely incentivize popular” models, Moody said.

“There might be cash back or low financing on one type of Ford, but on [another] type, there’s nothing,” Moody said. “It makes it more challenging for consumers because you really have to go and do your research.” 

2. Know your credit score: While shoppers might come across 0% financing offers, those deals are often reserved for buyers with excellent credit. Find out what your latest score is to avoid getting stuck into deals you didn’t fully understand, Moody explained.

3. Get pre-qualified for different loans: Shop around for auto loans at different banks or credit unions before going to the dealer, experts say.

That lets you determine what kind of interest rate you’re able to get and compare offers, Moody said.

Don’t limit yourself to comparing the monthly payments. Consider the amount of interest you will be paying over the life of the loan, Caldwell said.

Having these options will also help you negotiate with dealers.

“Always give the dealer the opportunity to beat that deal in terms of interest rate and the loans terms, and oftentimes, they can,” Moody said. “If they can’t, you already have this loan.”

Originally published by CNBC https://www.cnbc.com/2024/05/16/despite-auto-incentives-high-interest-rates-weaken-deals-for-buyers.html?__source=iosappshare%7Ccom.microsoft.Office.Outlook.compose-shareextension

RVIA’s March 2024 Report Reveals 9% RV Shipment Increase Through First Quarter

The RV Industry Association‘s (RVIA) March 2024 survey of manufacturers revealed that total RV shipments concluded the month with 32,243 units, marking a 1.2% increase compared to the 31,869 units shipped in March 2023.

Additionally, RV shipments have increased 9.3% compared to the same timeframe last year, totaling 85,941 units through March.

RVIA President & CEO Craig Kirby highlighted the growth of RV shipment. “Our cautious optimism for the year continues as RV shipments are up over 9% through the first quarter of 2024. The strong desire to get out and RV continues with our latest survey data showing that 89% of RVers have taken an RV trip in the past year and 26 million Americans planning to take an RV trip this spring. Millennials, many with young families, are showing the greatest interest in RVing with 38% of Millennials saying they would like to take an RV trip in the next year,” Kirby said in a News & Insights report of RVIA.

In detailed shipment categories, towable RVs, predominantly conventional travel trailers, saw a 5.9% increase from last March, totaling 29,018 shipments. Conversely, motorhomes experienced a decline, dropping 27.8% to 3,225 units.

Park Model RVs also saw a decrease, with shipments falling 36.5% to 343 units in March compared to the same month the previous year.

In a February 2024 report, the RVIA reported a 17.8% increase in RV shipments compared to the previous year, with 31,024 units shipped. This rise was particularly in the towable RV category, including conventional travel trailers, which experienced a 24.4% surge in shipments to 26,984 units. Additionally, motorhomes declined, with shipments dropping by 12.5% to 4,040 units. 

RVIA advocates for a $140 billion sector, representing over 500 manufacturers and component suppliers. These members produce 98% of all RVs manufactured in the United States and approximately 60% of global RV production. It serves as a source of research, data, and analysis concerning the RV industry.

The association also oversees compliance with various safety and quality standards, including plumbing, heating, fire safety, and electrical systems.

To learn more about RVIA’s 2024 March Shipment Report, visit rvia.org.

Originally published by Modern Campground https://moderncampground.com/usa/rvias-march-2024-report-reveals-9-rv-shipment-increase-through-first-quarter/

Study Expects Auto Industry To Work Harder To Maintain Profits In 2024

The U.S. auto industry is entering a “new normal” where automakers and dealers will labor harder to maintain profits, a report by Dave Cantin Group and Kaiser Associates says.

During the COVID-19 pandemic, supplies of vehicles on dealer lots fell. That meant higher vehicle prices and increased margins for automakers and dealers.

That is likely to shift this year, according to the report.

“The U.S. automotive industry has had an exceptional last few years,” the report said. “Indeed over the past 3+ years it seems like everyone won – everyone, that is, except the consumer (who has paid higher prices for fewer choices, longer lead times and more competition to get a vehicle at all.)”

In 2024, industry’s new normal “won’t look quite as attractive as it did in 2023, but better than it did (for manufacturers and dealerships) in 2019,” the report said.

Dave Cantin Group and Kaiser conducted interviews with industry analysts and executives as well as surveying more than 1,000 consumers.

Among the factors cited by the report as having an impact on the industry:

—“The economic climate in the U.S. is healthier than predicted going into 2024 – but a positive macro economic climate increases the complexity facing the industry.”

Interest rates may begin to decline later this year after efforts by the Federal Reserve to curb inflation. In turn, dealers may need to boost inventory and increase advertising spending, according to the report.

“Dealerships should expect to work harder to maintain profitability in 2024,” the report said.

At the same time, declining interest rates “are likely to unlock pent-up demand, resulting in greater vehicle sales.”

—Consumers surveyed are more likely than ever to buy SUVs. Of respondents, 44% said they want an SUV for their next vehicle.

“Consumers may be moving toward SUVs because of reliability, versatility, and safety, despite higher price tags,” the report said. “This shift may also align with brand preference: some of the brands consumers are most likely to buy are primarily known for SUVs.”

Automakers, including General Motors Co., Ford Motor Co., Toyota Motor Corp. and Nissan Motor Co. have retired car models over the past several years. Ford, for example, said in an April 2018 earnings announcement, that 90% of its North American vehicle fleet would be trucks, SUVs and commercial vehicles by 2020.

The report said increased SUV deliveries will mean higher revenues and profits, according to the report.

—International situations such as U.S.-China tensions and Middle East conflicts could still disrupt the industry. “Geopolitical conflicts could drive a U-turn on consumer sentiment” and lower the willingness of automakers “to make strategic investments,” the report said.

Article by Bill Koenig published by Forbes https://www.forbes.com/sites/billkoenig/2024/02/26/study-expects-auto-industry-to-work-harder-to-maintain-profits-in-2024/?sh=15255fcb433f

F&I Training Tune Up

With demand outpacing supply, many sales professionals acted as clerks. In an ever-changing market, this is a perfect time to focus on the basics and Fully commit to treating our craft as an art. The Summer Tune Up Series will consist of three one-day classes focused on getting back to the basics of sales, F&I, and service.

Finance and Insurance (F&I):” Frustration and Indigestion” or “Fun and Income”
Understanding the role of a Finance Manager, today’s customer, and having a non-confrontational process will provide a better performance in the Finance Department. This course will provide immediate measurable results using the tips, techniques, and processes taught. Taking the “Frustration and Indigestion” out of F&I and turning it into ” Fun and Income”.

Learn from a 30-year industry veteran who has trained thousands of high performers. Our Director of Training and Development Eddie Rains will be facilitating the course in our Corporate Training Center in Richfield, OH. This course will be free to GCADA and ADS members/clients.

Follow the link to sign up! https://advanceddealersolutions.com/about-us/class-registration/