Car dealerships encounter more shoppers paying cash

Car dealerships encounter more shoppers paying cash

“What’s causing that is that so many people have gotten sticker shock” at the interest rates available, Eleazer said.

Customers are not aware of the rise in interest rates that have taken place since the first quarter of 2022. When a customer whose last loan had a 2.9 percent APR is offered 7.9 percent today, “they’re about to lose their mind,” he said.

As a result, customers opt to pay cash instead.

“It’ll level out,” Eleazer said. “It always says.”

Interest rates today are like those before the 2008 financial crisis, he said, a point he also makes for customers.

The Fed had kept its internal benchmark rate target at 5.25 percent throughout 2007 until September of that year, when it began to fall to what would ultimately be a 0-0.25 percent target by the end of 2008. Instead, the Fed’s target rate had risen from 0 to 0.25 percent from the start of 2022 to 5 to 5.25 percent in May 2023.

Bob Parry, finance director at Tyrell Auto Centers in Cheyenne, Wyo., said he has seen a trend of cash buyers for both new and used vehicles, which he attributes to higher interest rates on car loans. He estimated in March that customers brought cash about 30 percent of the time in both new- or used-vehicle deals.

But Parry said he thought this cash was derived from a loan rather than savings — just not an auto loan.

“When you see the cash, I think people are pulling it out of their homes,” Parry said. “I don’t think there’s that many true cash buyers in this market.”

Parry said he believed financing a vehicle was a better bet for consumers than cash, and he financed all of his personal vehicles. “The worst thing” one could do was pay cash for a depreciating asset like a vehicle, he said.

“Why not use the bank’s money and put GAP insurance there and protect that?” Parry said. “Leave your cash in the bank.”