The most cliched phrase so far during this financial crisis has been "what happens on Wall Street affects Main Street," and nowhere is this truer than for that large car dealership located on Main Street, which will have to adapt to the new market in ways that will seriously impact car buyers. While not all of the changes are positive for consumers, the tough position dealerships find themselves in will make an already buyer-friendly market more so in the coming months. Below is our look at seven ways car buyers will be impacted.
7. More Incentives
Insecurity in the market will lead to fewer people buying new cars than before. It is no surprise that when car sales drop, incentives increase. GM just ran a long "employee pricing" deal, leading to a sales drop that wasn't as bad as expected, meaning that other automakers may follow suit. We've even seen dealerships running their own employee pricing deals on top of automaker offers. This is especially significant for truck buyers, who may see "owner loyalty" and "special overstock" pricing deals. Make sure to inquire about all available incentives if you're shopping for a car.
6. Fewer Dealerships
Most dealerships don't purchase cars directly from the automaker but rather finance their "floor plan" through a lender. The dealership then pays interest on that car loan until the car is sold. If a dealership can no longer secure a loan for their floor plan, they're no longer able to operate. This is one of the reasons why dealerships are going out of business. Typically, less competition is bad for buyers. In this case, the market is in such bad shape that the biggest impact will likely be for individuals who have long-standing relationships with dealerships.
5. Lower Financing Costs
For the first time in years Toyota is offering 0% financing on 11 of their models, a sign that the company wants to move inventory. With the exception of super-premium automakers like Ferrari and Maserati, who aren't typically impacted by these market fluctuations, most carmakers rely on selling a large volume of cars and will offer discount financing as a way to get through tough times. If you have good-to-exceptional credit then you may be able to get a great interest rate on a new car loan.
4. Less Easy Credit
While buyers with a solid credit history may get a great deal on a new car loan, those with limited credit histories or average-to-bad credit may not be able to get a loan at all or may have to offer up more proof of their creditworthiness, as banks are taking a greater interest in those who are asking for loans. A finance manager at a dealership in New Hampshire told the local paper that "They're looking at things they never used to look at. We work very hard to get approvals . . . what used to take me nearly two hours maybe will take me two days." Buyers should also expect to spend more time securing a loan than before.
3. More Fuel Efficient Models
When Heard Enterprises closed up shop they blamed their high inventory of trucks and SUVs. Look for more fuel efficient versions of vehicles and smaller cars to take up more space in showrooms. Those looking for fuel-sippers will no longer have to walk to the back of the lot to find something that gets good economy.
2. Less Model Variety
With truck and SUV sales falling it is no longer profitable for most dealers to keep a large variety of those vehicles on the lot when they could have more fuel-efficient models. Those looking for a specific color of truck or a special model sports car may have to look harder and drive further for them. This will become an even larger issue this fall when the 2009 models start arriving at dealerships. [Photo by Justin Sullivan/Getty Images]
1. Better & Worse Dealership Service
Dealerships will have to decide whether they want to attempt to make cuts in the service departments in order to lower their bottom line or increase customer service in order to retain a larger share of the dwindling new car buyer pool. It isn't clear yet which approach is winning out, though some dealerships have been hiring top employees from recently closed dealerships, a hopeful sign that they may be choosing better service. [Photo by Andreas Rentz/Getty Images]
Conclusion
There's no doubt that consumers with strong credit histories or the cash to buy a new car are going to make a killing. With the floor plan system, new car dealers are paying interest on every car that sits on their lot, giving them a major incentive to find a way to make a sale. On the other hand, fewer dealerships and harder-to-come-by credit will mean new difficulties for car buyers. [Top Photo by Justin Sullivan/Getty Images]