Rising interest rates might cause auto inventories to decrease, highlighting the need for inventory technology to prepare for and track potential changes in supply. Industry professionals can benefit from using inventory software to adjust to rising interest rates and calculate their supply costs. For the week of July 8, interest rates were 2.5 percent, an increase of nearly 1.5 percent from the year before, the Automotive News reported. The jump in interest rates - landing their highest level in two years - could cause some auto dealers to lower their inventory of new cars.
Auto dealers may decrease supply
These auto dealers may include Vince Sheehy, president of Sheehy Auto Stores, who said if interest rates continue to rise, he might decrease his supply. For floorplan loans used to pay for automotive supply, Sheehy pays an interest rate between 1.75 to 3.5 percent. For monthly new-vehicle inventory, the average cost of U.S. dealership floorplans is about 4.5 million. The ballooning rates could mean the difference between thousands of dollars a month in costs. For example, a 3 percent interest rate yields a monthly cost of $11,250 while 5 percent interest would be $18,750.
Sheehy keeps almost a 60-day supply of new-vehicle inventory, which is close to the industry's average day supply of 61 as of July 1, according to Automotive News Data Center. However, if interest rates creep up, he said he might decrease his inventory to a 50-day supply.
Respond quickly to industry changes with inventory software
Due to changing interest rates, auto dealers and other professionals in different industries must adjust for the fluctuations in inventory that result from them. Not only does inventory software facilitate daily company operations by creating invoices or printing or emailing purchase orders to vendors, it also allows business owners to have better control of their expenses and revenue when estimating and monitoring project costs related to supply. When interest rates rise, the software can calculate expenses like taxes or price of goods and check that inventory balances are accurate.
On the manufacturing side, this type of software can also help in the managing of raw and finished products. Manufacturing inventory software can calculate costs related to manufacturing products including components and non-tangible items. It can also account for the different inventory stages of manufacturing, including when products are normal, raw, or finished. For finished products, costs are added up into the final manufactured item for easier tracking. Since the relationship between interest rates and inventory are interconnected, inventory software is a good investment to prepare and calculate any future rate and supply changes ahead.