how higher interest rates limit new car sales case
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Excerpt by Case Study:
Car Sales and Interest Scenario Analysis
A finance manager employed by an automobile store believes the fact that number of autos sold in his local marketplace can be believed by the rate of interest charged for a loan. The fund manager performed a regression analysis in the number of automobiles sold and corresponding rates of interest and determined a direct correlation, with fewer cars offered as the eye rates elevated. This case examine assesses whether there are various other salient elements besides interest levels should be taken into account in this regression analysis, and whether the interest rate charged funding is the most important factor. A discussion relating to how a financial manager will respond to the dealership’s vice president of marketing’s request for a sales prediction at the applicable rate of 7% is usually followed by a great analysis with regards to whether the prediction of car sales for 7% fascination is a reflection of the latest downturn in the economy and its potential implications to get the dealership.
Are there elements other than rate of interest charged for a loan that the financial manager must look into in predicting future car sales?
Currently, there are a number of trends that will inevitably influence new car sales amounts for the foreseeable future, such as the following factors:
The great new demand for leasing compared to buying a car outright;
The growing choice for no-haggle selling;
The gradual improving of non-prime or sub-prime lending from an expedient for the few to a legitimate funding option for a more substantial segment in the vehicle-buying public;
More make use of credit rating models to qualify possible purchasers of vehicles; and
Tiered loaning rates based on consumer credit results (For vehicle finance specialists it’s a whole new ball game, 2009, p. 51).
Is interest rate charged funding the most important component to be regarded as in predicting future car sales? Make clear your thinking. The dealership’s vice-president of promoting has requested a product sales forecast on the prevailing rate of interest of seven percent.
At a prevailing interest of 7%, the fund manager’s regression analysis indicates that among 300 and 400 vehicles will be sold (the period of time for car sales is unspecified inside the regression model).
As financial manager, what reasons might you convey towards the vice-president in recommending this forecasting style?
While there is also factors involved in the decision to buy a new motor vehicle, the regression model is apparent evidence that higher interest levels result