How Interest Rate Cuts Could Impact Dealerships and Boost Sales

A woman holding a clipboard in a suit hands car keys to a man in a suit. They are both smiling and standing in a dealership showroom in front of a red car with balloons.

Long-anticipated rate cuts are finally here! On September 18, the Federal Reserve officially announced a large 0.5% rate cut with more to potentially follow. Rate cuts will likely impact dealerships positively, making it more affordable for customers to take out loans on vehicles. But taking advantage of this moment will take knowledge, creativity, and intentional follow-through.We’ll cover what the Fed’s announcement means for dealerships, how consumers will respond, and tools you’ll need to stand out while your competitors ramp up their outreach.

Why is the Fed cutting rates and how much will they change?

The Fed announced it is cutting the benchmark interest rate by 0.5%. This is the first rate reduction in four years, aimed at making borrowing costs more affordable for consumers. There will likely be additional cuts.The Fed Chair Jay Powell said the economy and labor market are currently in “solid shape,” and the intention of this cut is to keep it there. Inflation soared during the pandemic, and the Fed chose to lower rates now to protect against the growing unemployment rate while they felt confident inflation is down.

How will rate cuts impact dealership customers?

The impact of rate changes on dealerships is not immediate. Consumers will see changes gradually as banks lower their interest rates on loans alongside the Fed.A Cox Automotive study for Q3 of 2024 found dealers overall view the market as weak and see the economy, interest rates, and the political climate as the top three factors holding back business. More than 62% of respondents to the recent "Car Shopper Expectations vs. Market Realities" report from Edmunds said they have put off purchasing a vehicle due to high interest rates. (We’ll dive more into this report below.)So, it’s clear rate cuts impact both dealerships and consumers. More affordable rates should correlate with more dealership sales.

Buyers most likely to make choices based on interest rates

While rate cuts impact dealership customers on all levels, there are certain groups who may be more closely watching rates fall to guide their decisions. Here are some additional insights on those groups and the Edmunds study:

Used car shoppers: Used car loans typically have higher rates. A used car is considered a higher-risk investment since it has already undergone some wear and tear, so many lenders will bump up the interest rate to protect themselves against a potential drop in value. These buyers, who may already be more budget-focused, will certainly be watching interest rates.
EV shoppers: 74% of likely electrical vehicle buyers said a rate cut would affect their purchasing decisions, compared to 57% of non-EV car shoppers. EV prices are dropping fast, especially for used models. As a matter of fact, used EVs are dropping in price six times faster than their gas-powered used counterparts. Couple this with growing incentive opportunities and a lower interest rate, and EV shoppers could really score a bargain.
Younger shoppers: 72% of buyers under 44 said the rate cut would impact their choice to purchase a car, compared to 57% of buyers 45 and older. Younger buyers who have less savings may be more likely to need a longer-term loan and will be watching interest rates.
Those putting off other expenditures to afford their next vehicle: Regardless of interest rates, affordability is a struggle for the average American consumer. More than half of the Edmunds study respondents were putting off other expenditures to buy their next vehicle, including deferring home purchases, vacations, and even medical procedures. Americans feeling the squeeze of the economy can find some relief when it becomes more affordable to borrow money.

How should dealerships prepare for the impact of rate cuts?

As we have mentioned, the impact of rate cuts on dealership sales will be gradual. But to stand out and make an impact during this pivotal time in the industry, dealerships need to show how they are trustworthy, knowledgeable, and attentive.

Evaluate your advertising

The bottom line: lots of people have been waiting a long time for rates to drop. This may be a key time to evaluate your advertising. Look at how much you’re spending on advertising versus how many leads you’re converting. Determine if your BDC team and salespeople can handle more incoming leads. We put together a helpful blog on what the average dealership is spending and how many opportunities you should generate.

Share knowledge and build trust

Dealers are almost three times more likely than car buyers to say that the car buying process is very or completely transparent, according to Capital One. We’re in this industry every day, but most people go years without buying a car. You may know more about the impact of rate cuts on dealerships than your leads. Prioritize your reputation and be a trusted advisor to customers navigating the process with patience and personalization. Some ways you can do this include introducing yourself with a personalized video in their inbox, clearly outlining finance options, and answering relevant questions.

Re-engage repeat buyers and visitors

If you made a sale awhile ago and haven’t followed up in a long time, it may be an opportune time to let your customers know loan rates are dropping and offer a trade in. Alternatively, anyone who visited your dealership and walked away for whatever reason may be enticed to return when they can finance a new car at a lower rate. Use video to reach out to these buyers and let them know their options.

Introduction Video - Reaching out to past customer - John Pittman

Stand out from the competition

Your biggest competitors are also aware of the impact of rate cuts on their dealership. They’ll be investing in advertising, reaching out to past customers, and polishing their lead response strategies in anticipation of more sales. We’ve heard from our customers time and time again that video was the difference-maker they needed to beat the competition. Whether it’s reminding buyers of their appointment or showing them a walkaround of their favorite vehicle, video helps them remember you and builds excitement for a purchase.

Vehicle Walkaround | Forbes Waterloo Toyota

Get ahead of the rate cut rush with Covideo

We’ve spent 20 years serving dealerships, and while the economy and industry go through twists and turns, we know providing a transparent, engaging, and personalized experience is key to winning over your customers. Covideo provides a simple but powerful solution for recording, sending, and tracking the success of your personalized videos. The result is better customer connections and more sales.Take advantage of the impact of rate cuts at your dealership and level up your sales tools! Schedule a demo with us to learn more.

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How Interest Rate Cuts Could Impact Dealerships and Boost Sales

Why is the Fed cutting rates and how much will they change?

How will rate cuts impact dealership customers?

Buyers most likely to make choices based on interest rates