On Thursday, the Federal Reserve cut its key interest rate by a quarter point in response to the steady decline in inflation. This cut followed a half point reduction in September. The Fed’s benchmark rate is now about 4.6% — down from a decade high of 5.3% before the September meeting.
High inventories on dealers’ lots have come with high interest payments. Following the September cut, George Russell, a founding member of the Machinery Advisors Consortium, said that a typical $30 million floorpan debt would see a $150,000 benefit. This latest cut would add another $75,000 for a total of $225,000.
“The point is,” he said, “That is not much in a dealer with $30 million of floorplan debt.”
Ahead of this latest cut, Kyle McMahon, founder and CEO of Tractor Zoom, laid out the following annual interest rate savings on LInkedIn for equipment dealers at the previous 50 bps cut and the 200 bps cut that is expected in the next year.
Dealers with 10+ stores currently have $4.0M avg. inventory/location - save $20k at 50 bps and $81k at 200 bps.
Dealers with 1-9 stores currently have $2.8M avg. inventory/location - save $14k at 50 bps and $57k at 200 bps.
A dealership with 20 locations has $80 million of inventory and will save $1,620,000 in interest starting next fall, he said.
Speaking at a news conference, though, Fed Chair Jerome Powell said that “in the near term, the election will have no effects on our (interest rate) decisions.”
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