During 1980, inflation reached double digits, and the Fed Funds Rate soared to 20%. It was a good time to invest in CDs, but not for taking out a loan to purchase a home or an automobile.
Today, we’re dangerously close to double-digit inflation, and the Fed Funds Rate is only 50 basis points (one-half of 1%).
Deja Vu. We’ve been here before.
Pre-pandemic, the Fed Funds Rate was 1.75%, and we experienced an inflation rate of 1.9%. During the height of the pandemic, the Fed Funds rate went to 25 basis points (effectively zero). With the pandemic winding down and inflation soaring, it is not difficult to guess where it will go from here.
First: Dealers who do in-house financing and borrow money from traditional lenders will see their interest rates (cost of funds) increase quarterly for the next several years, reducing the dealers’ net profit.
Second: Cash flow will significantly be affected. The inputs (consumer payments) will be stressed due to a higher amount financed. Higher payment amounts caused by increased used car prices will increase consumer payment defaults. Inflationary pressure on the subprime consumer and higher gas prices will also increase defaults. Dealers will pay a higher interest rate to their lenders, the cost of inventory will rise, and ancillary product costs will rise.
Third: The combinations of high inflation and the possibility of a recession could put dealers in a bind as they did in the past. The failure of lenders to recommit loaning them money, changing loan agreements to protect themselves, or exiting the non-prime market entirely may negatively affect the ability of a dealer to survive.
Based on $76 billion of automotive loan data, Agora Data’s AI/ML models are 98% accurate in predicting performance and cash flow. We model the loans in each dealer’s portfolio using advanced analytics. Agora’s senior management has successfully weathered these “perfect storms” before. Thousands of Agora’s members benefit from our experience and data-driven analytics using our platform.
With AgoraCapital’s line of credit, dealers are protected from rising interest rates with terms corresponding to the length of a loan, that is, 48 to 72 months. Only Agora Data offers this single-digit interest rate through our reducing rate line of credit that migrates to a low fixed rate from our industry-leading Crowdsourced Auto Securitization.
Learn the AgoraAdvantage and protect your dealership’s cash flow, future proof your business, and weather the upcoming storms with the most abundant and affordable capital available to dealers today. Visit us at www.agoradata.com or call us at 1-877-592-4672 to get started.
© 2022, Agora Data, Inc. All rights reserved.