Guest commentary: High interest rates may lead to hard conversations with customers

There can be some periods of downtime on the dealership showroom floor and in the F&I office. A good use of that time would be to hone your skills, starting with assessing current market events.

Identify what the current events are and how they are creating potential objections from customers. Next, plan your responses and strategize how you will outrun future objections before they occur.

A side effect of the inflation we are living with is higher interest rates. Since this isn't likely to change soon, we better choose our words wisely.

The days of subvented rates and giant rebates are over. Credit unions — which we used to battle over who could do the loan cheaper — were among the first to react with almost immediate rate increases following the Fed.

I remember the days when customers would walk out the door over 0.15 percentage points or you'd lose a deal because their lender had automatic payment rate reductions (not available if financed at the dealership).

Customers accustomed to getting approved at rates like 1.99 percent (which we could sell with a traditional maximum markup of 2 points on a 72-month loan) are now getting approved at buy rates ranging from the low 5s to the mid-7 percent range.

Translation: An 800 score on a new Yukon with $30,000 cash down is signing close to 8 percent on a typical deal, and the paper is performing without abnormal chargebacks.

Are consumers happy about it? No. Does this make them defensive and confrontational? Potentially.

This could make them draw an arbitrary line in the sand during negotiations that you must outrun or defend forever. This is where they say things such as, "I'm not signing that deal. I have good credit." You can respond with: "As I'm sure you know, these days with what's going on in the world of interest rates …"

Customers are aware of what is happening. I hate to even use the phrase "we're all in this together." But everyone is subject to the effects on rates. Simply remind the customer by saying something like, "We don't set the market, we just live in it."

Not enough? You want a silver bullet? The closest thing I have to offer is "rising rate environment." We are in one right now; explain this to your guests.

Customers might say, "That's a high rate." Acknowledge them. "Yes. Yes, it is. Can you believe how crazy rates are these days? Sign here. You guys have any big plans for the weekend?"

Acknowledge their statements. Answer their questions and then redirect and move forward. Assume no other options are possible with confidence and then just smile.

They might say, "Is this the best rate I can get?'

It is very important how you answer this question. The best response I can offer you to stay compliant and factually accurate is: "This is the rate that's available if you wish to finance with us."

This usually ends their attempt to posture, followed by then quickly signing continuously until the deal is completed.