Coping with High Interest Rates & Negative Equity
There are two big trends in automotive right now that are causing heartaches, headaches, and stomach aches for both dealers and consumers: high interest rates and negative equity.
There’s the obvious challenge of higher rates making monthly payments more expensive. And what happens when the customer sees a rate on your website, uses that to calculate their payment, but they’re never gonna qualify for that?
Negative equity refers to customers owing more on their car than it’s worth. When they’re ready to trade or buy and show up at your dealership having calculated a penny perfect payment that DOES NOT factor in their upside down loan payoff, and then you present the real number, they’re gonna be TICKED at you, not the tool that gave them the original number.
Compounding these issues, we know that when people go through the full ‘buy a car online on your website” process, they rarely select the additional add-ons, warranty options, etc, potentially giving them a false sense of what their monthly payment will actually be.
So how should you navigate around these?
It’s a blend of people, process and product. And since we’re a software company we’re going to focus on having the right tools.
Just like there is a time and place for having a trade-in range or a single price offer, there is a time and a place for presenting a monthly payment range versus a penny perfect payment.
In this environment of bonkers rates and negative equity, you’re at a much higher risk of a terrible conversation with a customer if you’re presenting firm rates and trying to give them a penny perfect number on your website without having a conversation first.
Here’s what you can do:
- Unless you’ve got an obligation or requirement to do so, don’t show the annual percentage rate on your site unless you’re 100% confident that everyone is going to qualify for that rate. If you’re not, pull it down and save the interest rate conversation for when it’s appropriate in the sales cycle.
- Present a monthly payment range, and adjust that range so that you’ve got room to move up or down based upon having an honest conversation with someone on their trade-in, their credit scores, and their budget.
- Build in mark-ups to the interest rates that power the monthly payment calculations, knowing that not everyone is going to qualify for the best rates.
If you can’t do that today, reach out to us and we can show you our approach.