Audio story by Rachel Delgado
Dealerships Face the Forceful Effects of an Inflammatory Economy
By Rachel Delgado
SAN MARCOS, TX – Traveling to dealership after dealership, applying for loans with bank after bank, looking for the place that will give you the lowest interest rate so you can finally buy the car of your dreams. Unfortunately, that’s not quite as easy as it used to be. Inflation has been rising for what seems like an eternity which has caused auto loan interest rates to skyrocket higher than we’ve seen in years. But buyers aren’t the only ones suffering at the hand of this excessive economic climate.
Believe it or not, service and parts departments of car dealerships are being heavily impacted by these unfortunate circumstances. As inflation rises, it causes interest rates to soar, consequently deterring potential buyers from purchasing vehicles. A lack of vehicle purchases means a lack of vehicles being traded in, which negatively impacts the reconditioning side of the used car service department.
Fred Meeks, the used car service manager at San Marcos Chrysler Dodge, explains the negative impacts on the preowned service department. “The biggest impact on the used car department is that it costs more to recondition cars that have been traded in because inflation has gone up”. He goes on to further explain the cycle of used car value and used car reconditioning. “Used car values have dropped significantly, but the cost of reconditioning a vehicle to sell has greatly increased. Parts prices are high, but the value of vehicles has dropped, so it has had a significant impact on our gross profit”.
According to PRN Newswire, in the third fiscal quarter of 2021 the average APR (annual percentage rate) for financing a new car was 4.3%. The average APR for financing a new car in 2022 is now 5.7%. Those rates drastically increase when financing a used vehicle. The average APR for financing a used car in 2021 was 7.4%. In 2022 it is now 9%.
Nate Stewart, a senior technician at San Marcos Chrysler Dodge, has been personally and professionally impacted by the ever-rising inflation rates. When asked how inflation has affected his personal life, Nate said, “The cost of gas has gone up a lot. I commute to work from San Antonio and it costs me about $70 to fill up my little four cylinder car.” Like a lot of mechanics, Nate is paid for the hours he spends actively working on a given vehicle, not the total amount of hours he spends at the dealership. He proceeds to talk about the difficulties he has faced at work due to the current economy. “Management doesn’t want to spend as much money reconditioning cars. They only approve immediately necessary repairs and it didn’t used to be that way, so it hurts my paycheck a lot.”
As stated by the Federal Reserve Bank of Minneapolis, the inflation rate in 2021 was at 4.7%. So far in 2022, the rate has increased to 8.6%. According to the same statistics chart, a percentage increase that drastic hasn’t happened in the United States since the late 1970s.
Parts departments are one of the most heavily impacted sectors of car dealerships. Mason Villareal, the assistant parts department manager, explains the various changes the department has faced this year as a result of increasing inflation. “Prices of parts usually go up monthly. In the past we’ve had monthly reports of prices increasing by maybe 25 to 50 cents, but now we get monthly reports of prices increasing by more than $20. Some parts are even doubling in price.” Mason goes on to explain that unfortunately, the only way to stay afloat is to pass that cost increase off to customers, but the department tries to avoid that by outsourcing for more affordable parts.
It’s no secret that inflation percentages have been a hot topic lately. Almost every person and business has been affected by this once-in-a-generation economic trend in one way or another. Most people have been on the edge of their seat wondering when they can expect a break from these trying financial times. According to Insider, we can expect to see inflation decrease to as low as 3.2% by fall of 2023. If you’ve felt strain in your personal or professional life, just know that there could soon be a reprieve on the horizon.