Ok...forgive me if this is econ 101, but I got another one :) So in essence the lending branches of the auto manufacturers are not traditional banks in that banks borrow money from the government, and these guys lend money out of their own pockets...so they do not have to worry about the prime rate.
Wouldn't they still be vulnerable to inflation though? I mean...if they loan money out at 1.9%, and inflation >= 1.9%, the the real money that the car buyer is paying for the car is actually amounts to less than the sticker price + interest rate...or not? If I'm not way off base...my whole line of thinking is that the auto manufacturers are betting that inflation remains in check for at least the next 4 years...and for inflation to remain in check, there can not be a big economic improvement...which usually from what I've read, will cause inflation to rise until the Fed checks it with interest rate hikes. Even if inflation is about 1.9% for the next 4 years...doesn't that make the lending branches of these companies a lot less profitable, meaning they have to raise prices on the cars...meaning the inflation rate goes up even more if we get too fast an increase in inflation, or it stay too high too long? Good god...this stuff is confusing :) -- jon mailto:[EMAIL PROTECTED] Monday, June 30, 2003, 6:52:02 PM, you wrote: CG> Your understanding would be correct if it was straight financing, but it CG> isn't, so,well,it isn't. CG> These are promotional rates and have nothing much to do with actual intrust CG> rates like the "prime" rate and the overnight rate. They are usually funded CG> by the manufacturer, but usually the dealer has to kick in something as CG> well. Most of the big auto companies have their own lending arm, and,oddly CG> enough, it is often the most profitable part of the company. CG> There is no line relationship between interest rates and inflation. CG> Cary Gordon CG> At 06:16 PM 6/30/2003 -0400, you wrote: >>Congratulations :) >> >>I want to branch a little though...isn't 1.9% less than inflation? >>Doesn't that mean that over time, if interest rates rise, they will be >>making less money? Especially considering the fact that with all this >>built in economic stimulus...we are bound to see a really big uptick >>in inflation if/when everything starts to turn around. >> >>Or is my understanding of how this works incorrect? >> >>-- >> jon >> mailto:[EMAIL PROTECTED] CG> ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~| Archives: http://www.houseoffusion.com/cf_lists/index.cfm?forumid=5 Subscription: http://www.houseoffusion.com/cf_lists/index.cfm?method=subscribe&forumid=5 This list and all House of Fusion resources hosted by CFHosting.com. The place for dependable ColdFusion Hosting. http://www.cfhosting.com Unsubscribe: http://www.houseoffusion.com/cf_lists/unsubscribe.cfm?user=89.70.5
