In the 14th consecutive increase since December 2021, the Bank of England has raised interest rates by 0.25 percentage points, meaning the base rate now stands at 5.25%.
The new interest rate, which is designed to reduce consumer spending, will be bad news for car sales.
The latest increase will place further pressure on the many consumers who are already feeling the cost of living pinch and means that many more may join them, especially as further rate rises are widely forecast.
The latest rate increase only adds to falling consumer confidence.
Motor retailers must contend with a more fragile consumer and the likelihood of higher finance costs. Tara Williams, chief revenue officer at AutoProtect Group, is clear that adapting to the current economic landscape by taking steps to add additional confidence to the car buying experience represents an astute approach, noting:
“Value-added products, such as warranties, paint protection, and GAP, traditionally see increased volumes during economic downturns because they engender reassurance and confidence. In today’s environment, they’re all about supporting the good customer outcomes that the FCA’s Consumer Duty focuses on.”
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The extended low-interest, low-inflation period means that the millennial and Gen Z generations, typical users of dealer finance, have never experienced the rapid financial challenges that inflation has created.
Returning to lower interest rates is going to take time to happen. It’s not just consumers for whom the current interest rate scenario is new; for many dealer staff, it is also proving to be an eye-opener.
Adapting to this latest ‘new normal’ means thinking differently. Williams said: “It’s time for dealers to look again at the role value-added products can take in marketing, such as advertising used cars with longer warranties and as a profit centre by promoting the inherent reassurance and cost certainty, matching this to each customer’s individual situation.”