It may not have been a big surprise, but dealers and other borrowers now have a chance to get their money a little bit cheaper.
That's because the Federal Reserve has lowered the interest rate banks pay on certain loans, which should lead to lower rates throughout the U.S. financial system. It's the first time the Fed has cut rates since the dark days of the Great Recession that dragged two of our hometown automakers into bankruptcy.
For dealers, your floorplanning and other borrowing should cost you a little less, which is good news. The Fed's action also should lower costs for consumers and help more of them buy nicer vehicles, which is good news.
The bad news is why this is happening.
The reason that the Federal Reserve has lowered its rate is that its leaders can see that economic growth is slowing. Specifically, the president's metals tariffs are making manufacturing more expensive in the U.S. and his tariffs on Chinese imports (taxes paid primarily by U.S. consumers) are stunting demand for products made around the world — and the global malaise is reverberating to our shores.
All you have to do is take a look at some auto stocks or sales results (from the companies that are still reporting sales) and you realize that we are looking at a slowing economy. Whether or not it is temporary remains to be seen and probably requires a crystal ball that is a lot sharper than any that we can get our hands on.
Our friend Mike Jackson, who has been making news for other reasons, has a seat at the table these days — he's chairman of the Fed's Atlanta branch as well as executive chairman of AutoNation — and maybe his crystal ball is sharper than anyone else's.
He noted on a conference call last month that we all expected rising rates coming into this year, so the idea that rates are getting cut represents "a huge change in mindset" that might help consumers decide to buy big-ticket items.
But the undeniable truth is that the automotive economy is slowing, even if it seems to be just a tad. The Fed is very cautious when it gets involved with interest rates and could not ignore the situation. Although it has huge implications for the automotive industry, it may well have been motivated by additional pressures.
Whenever you start thinking about interest rates, the president and his policies come into play immediately. The Fed is independent and our president does not like it that way, so he adds pressure where there should be none.
The trade deals that are floating around — whether you are looking at China or the new North American trade agreement — will all have dramatic implications on the upcoming elections.
All of this makes a very sticky situation even more delicate.
But for now, interest rates have been lowered and automotive retailers should appreciate the change and maximize the opportunities. There will still be a presidential election next year — after the Democrats choose from among their twenty-some contenders — as well as Chinese trade and lots and lots of tweeting.
It will, as always, be up to the auto industry to unravel the confusion and make lemonade out of lemons.