Auto analysts say cuts in the Federal Reserve's benchmark interest rate are unlikely to move the needle much for car shoppers this year, but some car dealers disagree.
Rising new-vehicle prices and other affordability concerns are straining customers, according to dealers last week at the Automotive News Retail Forum: Chicago. They said the dip of 50 basis points in the benchmark interest rate could tip the scale for certain customers and would help dealers by lowering floorplanning costs.
The nation's central bank last week trimmed the benchmark rate by a quarter point. That followed a quarter point cut July 31.
Dave Wallace, an area vice president for Penske Automotive Group, said dealers, as they benefit from lower borrowing costs, can pass some savings to customers to boost sales.
"Even though cars are becoming more [expensive], [lower rates] will lower their payments," Wallace said. "People are driven by payments."
Lower rates also increase the likelihood that captive finance companies will continue to offer 0-percent finance deals, Wallace said. Car shopping site Edmunds noted that no-interest finance deals dwindled this summer because of higher-than-normal interest rates and other cost pressures on automakers.
In Wallace's Arizona area, Penske operates a lot of stores under premium luxury brands where the customer base is less sensitive to interest rate fluctuations, he said.
Aaron Zeigler, president of Zeigler Auto Group with dealerships in Michigan and Illinois, said lower interest rates help with consumers and dealership floorplanning.
"It makes the car a little bit less expensive, [which] helps the market out," Zeigler said.
Daryl Kenningham, president of U.S. operations for Group 1 Automotive Inc., said even a marginal interest rate cut can change operating costs.
"It's huge," Kenningham said, citing the effect of rising rates from 2018 to 2019 before the Fed's cuts. He said Group 1 had almost identical inventory year over year, but floorplanning expenses were $1.5 million more per month this year when rates were higher.
"We're a 4 percent margin business," Kenningham said. "Every single penny counts."