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It just means they're not going to pay to float the cost of the car from the manufacturer. iirc the dealers "buy" the cars from the manufacturer, then resell th
by _huayra_ 4y ago
It just means they're not going to pay to float the cost of the car from the manufacturer. iirc the dealers "buy" the cars from the manufacturer, then resell them to the customers. In the interim, they must carry this floating debt while the unsold cars sit on the lot. This is often why you can cut great deals on cars they want to get out of their inventory: it's often better for them to take the principle hit instead of letting the car rack up more interest payments on the floorplan or take a sizable principle hit in a wholesale auction.
- pradn 4y agoDoes this mean that rising Fed benchmark interest rates affect car dealers in a few ways? 1) The economy is in an iffy position, so customers don't want to make big purchases. 2) Even if customers are willing to buy, car financing rates are higher so they'd be reluctant to pay a higher interest rate. 3) Cars stay longer on the lot, meaning a longer duration of interest payments. 4) The interest rates the dealer pays to the bank increase, too.
- _huayra_ 4y agoYou got it, but also add: likely dealer bankruptcies because the overhead is absolutely bonkers (and is often required by brands to set up a dealership; every brand wants a bunch of air-conditioned space to show off their new models!). This is also why you should never take your car to the dealer service center if possible. They try to rip you off so hard (and underpay their service techs) because they truly don't make that much money off each car (at least before the covid boom season, but as we see that is reverting HARD).