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New Vehicle Loans

New Vehicle Loans Continue to Get Longer

JKRAdvertising / Uncategorized /

August 29, 2014

New vehicle loans are being stretched more and more as time goes by. According to a recent report in the Detroit News, the average new vehicle loan is now for more than five years – a big departure from days gone by when most car loans were either four or five years.

Today, there are car loans for six and seven years – and a few for even longer periods than that. This, of course, is part of the reason the automotive industry continues its recovery. The article cites an example of how these extended loans give the consumer additional buying power. A 2015 Ford Fiesta SE hatchback (with 10 percent down and 1.9 percent financing) can be had for around $320 per month on a four-year loan. But a much larger vehicle, the midsize 2015 Fusion SE, is just $38 more per month when financed for 4.9 percent over six years.

Currently, almost a quarter of all new vehicle loans are for longer than six years – and it isn’t completely uncommon to see dealers offer their customers 96-month financing. That’s eight years to pay for their car!

Might New Vehicle Loans Negatively Affect the Future?

Adam Jonas, an auto analyst from Morgan Stanley, was quoted in the article as saying these lengthier car loans are “borrowing demand for the future.” It’s for this exact reason that some automakers, such as Honda, have no plan to resort to these 72-month loans.

Experian’s recently released stats mirror those in the Detroit News article. Their data shows new vehicle loans are currently going for 73-84 months on average – which is a whopping 27% increase from the first quarter of last year. The average amount financed in the first quarter of 2014 was $27,612, up nearly $1,000 from the same time period in 2013.

(Note: According to Bankrate.com, the financial information Website, the average rate on a 60-month new car loan is currently 3.18 percent. )

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Post-Pandemic Dealer Gross Profits are Down – But They Don’t Have to Stay There!
March 13, 2024
It is no secret that dealer gross profits per vehicle are down sharply in the post-COVID automotive world. According to a recent article in Automotive News, gross profits of the six largest publicly traded dealership groups plunged significantly from Q4 2022 to Q4 2023. One of them was actually down 35% per vehicle!

The article explains: High interest rates, more expensive vehicles and a steadier post-pandemic supply chain continue to soften demand and bring it closer to pre-pandemic levels. Still, new-car buying has remained strong overall …

This means that, while sales volume is similar, overall bottom lines are lower for many dealers due to the reduced gross profits. What about your dealership?

Being Realistic
It’s time to turn the page! The time for dealers to simply be order takers for people willing to pay MSRP for a vehicle (and in some cases more) has passed and dealers have to work hard once again to achieve acceptable gross profits.

Selling a high volume of cars doesn’t control gross profits, no matter how much you wish this was the case. Correct processes and menu pricing – and strict adherence to them – do!

What kind of processes?
∙ Slow down the transaction! Your sales staff has to once again sell the customer on the features and benefits of every new and pre-owned vehicle on your lot.

∙ Your salespeople and managers should devalue the customers’ trade-in value (politely, of course) as much as possible. After all, if the customer expects you to lower your price, shouldn’t you be able to do the same on their trade? Remember, you’ll have to fix it up, put your name on it and resell it to someone else with all the tenacity you would a brand-new car. So make sure you buy it right … because the profit is made when you buy it, not when you sell it!

∙ To that end, management should be ready and willing to leave the desk and do thorough walk-arounds on each trade to ensure the best outcome for the dealership.

The Cure for Low Gross Profits
If you are like a lot of dealers these days, you could use some good news. Here it is: while you may not have the capability to achieve profit margins similar to those you enjoyed during the pandemic, they could likely be improved. JKR’s clients enjoy the benefit of attracting not only more customers, but better ones, too!

If meeting and exceeding your sales goals (and increasing gross profits at the same time) sounds great to you, you need to call us. Don’t settle for reduced gross profits when help is out there to get you closer to where you’d like to be.

Want to know how we do it? Reach out to Senior Partner Richard Brauns (407) 701-4233 or Partner/Vice President Jon Albert (407) 718-2494 today.

JKR Automotive Advertising: We Move Cars.

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