Self-driving software is a type of technology that helps cars drive themselves without needing a person to control them. It uses cameras and computers to see and understand the road.
LiDAR is a technology that helps cars understand their surroundings by using lasers to measure distances. It's like a very advanced way of seeing what's around the car.
Radar is a technology that helps cars see things around them by sending out radio waves. It can tell how far away objects are and how fast they're moving.
Auto loan interest rates are the fees you pay to borrow money when you take out a loan to buy a car. If the rates are high, it costs more to pay back the loan.
Auto incentives are discounts or special offers that car companies give to help sell their cars. This can mean getting money off the price or lower interest rates on loans.
Welcome back to Daily Drive. I'm Kellan Walker. Cash deals are on the rise,
accounting for 19% of new vehicle sales in the third quarter. That's a problem for dealers,
since the average cash deal generates just $461 in FNI gross profit, compared to nearly $2,000
on finance sales. But there's still opportunity. Our own John Hutter spoke with Automotive News
senior retail editor Dan Shine about why cash deals are increasing, what products still sell
to cash buyers and how low interest rate incentives could change the picture. Here's that conversation.
John, thanks again for joining me on the FNI Friday edition of Daily Drive.
Hey, great to be here.
So let's jump right in. You've had an interesting story in AutoNews.com. I encourage all our dealer
friends and FNI people to go out there and read it about some recent studies from Experian about
all cash deals and how they are on the rise. Tell us a little bit about what Experian found.
Yeah. Well, Experian tracks the percentages of loans and leases it sees out there. It's
kind of assumed that whatever's left over is cash deals. The most recent one, we're at 19%,
we're presumed cash deals. Now, there's going to be a few in there that Experian doesn't initially
see where it's a direct loan. The customer shows up with a check and Experian doesn't realize that
it was from like a credit union or something originally. But they've kind of told me it's
really you can attribute it to cash deals and that's higher than last year and it's higher on
both new and used. So to me, that kind of data has been interesting just to see because interest
rates have started to drop. There was an initial rush to cash and it was assumed that consumers
were freaking out because interest rates weren't as low as they had been over the last few years.
But they're kind of hanging in there and vehicles are more expensive. So that was
kind of what got me intrigued to look at the issue. Yeah. And what were some of the top
reasons people gave for paying all cash besides that they had a big lump of cash in their pocket
they wanted to spend somewhere. Right. Yeah. Car gurus recently did a study last summer and
the biggest one that they found was not wanting to have a monthly payment. But that dropped
quite a bit from 42% down to 31%. And they didn't have a really good reason for that,
but that was kind of interesting. Interest rates were another high reason. And then other common
ones were having an insurance settlement or having a trade in where it was cheap enough to cover the
rest with cash. Interesting. So what does this mean for dealerships for FNI offices? I guess the
common wisdom would be it's not good if people paying all cash, they typically don't buy anything,
no extra products and they kind of walk out the door. Is that kind of the case or is there still
opportunities there for the FNI office? Right. Well, there's still opportunities and that's what's
what was kind of also interesting to me. Like the FNI, historically, you don't like cash deals
because there's no dealer reserve from arranging the financing and it's harder to sell FNI products
when there's no loan to help cover the cost of them for the customer, but it's not impossible.
Stone Eagle's data shows that even on a cash deal, you can still average $461 in FNI gross
profit per vehicle, which is much lower. I mean, it's more than $1,000 lower than what you would
get with a finance deal, but it's still something. I mean, you've still got like 20% of customer of
cash buyers or buying like a service contract. There's still room, there's still an appetite
out there to buy products. So it's going to be tough, but it's not, you're still going to make
money on them enough at the time. So yeah, so hang in there, guys. Are there certain products that
if say I walk in and I buy a key and tell you ride all cash that maybe I still might get my
arm twisted that maybe I'll get a couple of products? Are there things that are more popular
than others? Right, yeah, exactly. During the third quarter, you still had 21% of cash buyers
were bought service contracts. So that was the most popular. Security items such as low jacks
still showed up 15% of the time on cash deals and paint and fabric made it 12% of the time. So I mean,
you know, it's all over more than one in 10. I mean, it's one in five for the service contracts.
So, you know, it's tough, but it's not impossible. And, you know, statistically,
you are going to sell some stuff still. Yeah. And I guess makes sense that
if there are incentive automaker incentives that that all that will kind of bring down
people are maybe less likely to pay all cash if there's if there's an incentive there,
0% financing, you know, 0.9% financing. What did they tell you about that?
Right. And yeah, that's that's the other one. And that was, you know, the initial like spike in cash
deals. What I was kind of told and what I kind of assumed is it was due to just auto loan interest
rates in general. But what I didn't really thought about enough at the time was that, you know,
auto incentives were probably still kind of low because of, you know, it was still the inventory
shortage. And at this point, they're still quite they're still pretty low. I mean, you've only
and especially on like 0% financing and that kind of thing, I think Edmunds had some data recently
for the fourth quarter where, you know, it's only around like 3% or something like that of deals
that's showing up. So customers don't have that. That's the other thing I think that pushes consumers
to, you know, to finance a vehicle instead of paying cash. They're just not those low interest
offers quite as commonly as there maybe were in the past.
Yeah. And I think they kind of pick that seeming incentives picked up a little bit in December.
And so maybe we'll see some of that again, this affordability crisis is not going anywhere
anytime soon. And I think, you know, I think between dealers and automakers, they need to kind
of figure out, you know, how they can get more people into the showroom. And it's, you know,
it's been tough the last year. So this is an interesting thing. John, great stuff, great
insight. Tell folks go out there and read it auto news.com about the all cash deals on the rise.
Thanks for your time, John. Thank you.
News on Tesla's robo taxis, cash deal trends, VW's branding strategy, and everything happening
in the auto industry at auto news.com. Come back over the weekend for our weekend drive
edition of the show. Our own Larry Velaquette and Michael Martinez talk about the biggest
news stories from the past week, including President Trump's about face on new European
tariffs related to Greenland and Lincoln's ambitious retail strategy overhaul.
If your plans are changing by the day or by the hour because of the changing tune of this
administration, you're not doing it right. We'd love to hear from you. Let us know what you think
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About this episode
Tesla has launched its RoboTaxi service in Austin, marking a significant milestone in autonomous ride-hailing, albeit with only a few driverless vehicles currently in operation. The episode also covers Volkswagen's rebranding of its ID.4 SUV to ID Tiguan, aiming for emotional resonance with consumers. Additionally, automotive reporter John Hutter discusses the rise of cash deals in vehicle sales, their impact on dealer profits, and the opportunities that still exist for selling products to cash buyers. Insights into tax refunds and their implications for dealers are also shared.
