What to do when interest rates rise and repeat business decreases

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It hasn’t been an easy time for car dealers, who have had to deal with the pandemic and then the supply-chain issues and vehicle shortages related to it.

It hasn’t been an easy time for car dealers, who have had to deal with the pandemic and then the supply-chain issues and vehicle shortages related to it. And now, just as vehicles are coming back onto showroom floors, rising interest rates are taking their toll on customer demand.

You need your customers to keep coming back to you. As you know, it takes a fraction of the time and money to keep an existing customer than it does to find a new one. But even more importantly, in these increasingly uncertain times, just getting them in the door is a challenge.

The answer may involve a two-pronged approach, where you proactively reach out to your existing customers. Then you need to double down on leads, especially those coming in through your website or other online marketplaces.

Retaining repeat business with existing customers
You’re going to walk a fine line here, as you’re both the person who’s trying to sell them something, and trying to save them money while doing it. It’s essential to look at the big picture, as rising prices and interest rates are affecting them on almost everything, from food to fuel to fundamentals. It’s not just car loans, and the extra they’re spending elsewhere that will affect what they can afford for a vehicle.

  • Watch your customers’ anniversary dates and do some math on their vehicles – what they could be worth as trade-ins and what’s available on your lot. If their vehicle is well-equipped and well-maintained, and you have something that’s in good shape but a bit older or with fewer features, the monthly payment difference could be significant even with higher interest rates. And when the rates finally come back down to earth, they’ll likely be ready to trade back up again.
  • Consider offering loyalty programs. They’ve always been a good idea but now they could be vital. Offer free services or items once customers have paid for a specified number of oil changes, or bought enough tires, or purchased specific accessories. This will of course be done in conjunction with your parts and service departments and will benefit all, as customers who regularly come back to a dealership usually end up getting their next vehicles there.

Gaining new customers in tougher economic times
High interest rates are putting people off major purchases, but there are still those who need a vehicle. They might not have been able to replace an old one due to vehicle shortages, or they’re back to in-person work after pandemic shutdowns and they need wheels, but even so, they’re treading lightly. You’ve got a steep road ahead of you because of the economic situation, and you can’t afford any missteps on the way.

  • Go online, stay online, prioritize online. Across virtually all buyers, new or used, male or female, old or young, online marketing is a vital part of the shopping process. Checking your website and online marketplace entries on a regular basis throughout the day is as important as answering the phone when it rings.
  • Do everything you can to make your vehicles look their best on your online sites. Be generous with photos, list all of the features, and yes, put the price up front – studies show that customers are far more willing to explore an online vehicle when they have that information. Always advertise any available incentives you are able to offer.
  • Be the voice of reason with new customers. If it’s obvious they’re going to be in over their heads with interest rates on the vehicle they’re considering, show them alternatives, such as a smaller one, a lower trim, or a pre-owned. If they can absorb the higher payments, work with them on a shorter-term loan. The choice on all of these will still be up to them, but they’ll appreciate you taking the time to offer options and they’ll remember that for next time.