I know this is not a financial forum, but then you guys are smart.
So I hear all this stories about credit being tight and now they keep saying that call dealers are going out of business. My question is whether this will make new and used car prices to drop or actually will reduce competition and increase the interest rates and make us pay more for the same car?
A little of both things could happen but if nobody wants a new car, the prices will not go up. Maybe the $600 wax job will be free from now on.
You are asking for a singular simple answer to a complex situation. Credit is tight in some areas but not in others. Local banks and credit unions have money and are lending-but not at close-out rates. If no one wants loans, the pressure will be to reduce interest rates as much as possible but there is a floor to it.
If dealers have models on hand, they are paying interest on the loans on those cars and must move them as quick as they can. In order to stay a dealer, they must buy and sell more new models. If they can’t make it (which it sounds like 600 are now closing), they will go out of business and someone else will buy their inventory. Fewer dealers will mean less competition which may or may not result in higher prices and poorer service-just depends on the area. Small town versus large city with other options. Look at the Walmart model. Are consumers better or worse off with Chinese goods at bottom feeder prices and help paid at $8 an hour. Short term maybe, long term don’t think so.
Some shakeout of poorly run businesses is good but got a feeling some good ones are going down before its all said and done.
Ther are other variables also.
Want a great deal on an SUV, new or used? Your time has come.
On the other hand, if you want a mini you’ll have to pay permium and get on a waiting list.
Want something really cheap? Tata automobiles will be coming soon, probably the next few years. Chinese cars are also on the way.
We’re a global economy now. Whether incentives are strong for a manufacturer to reduce costs to dealers depends not only on the local markets, but on the world markets. Generally those reduced costs will come in the forms of changes to dealer financing plans, changes to dealer incentives, and changes to model mix requirements. Whether the savings get passed on to the consumer will depend on local markets.
I just ain’t that simple.
There is a glut of cars on the market as consumers are tightening their belts. Unless you are shoppping for an economy car there are lots of good deals out there. The US big three have far too many dealers, so many will consolidate. This will be a buyers market for all but Japanese economy cars. Cheap foreign cars such as Hyundais will keep a lid on prices. The best is yet to come!
In addition to what’s already been posted, manufacturers have actually been using numerous ways to reduce the number of dealerships these past few years. By changing financing schemes, dealer mixes, things like restricting auctions, lots of complicated stuff. Thousands of dealerships have succombed (sp?).
I read Automotive News magazine, the industry trade mag for dealers, and while I do not pretend to understand fully the complexities in the way the manufacturers manipulate the industry, they do so.
An hour? Don’t you mean a month? 
If a dealer has lower overhead, he can sell for less and still make a profit. If he has too many cars on his lot, he will lower his price to get rid of them. This is a good time to buy unless you are looking for a loan and have less than a stellar credit history.
Right now, there are too many automobile factories, too many workers, too many cars and too many dealers for anyone to make a decent living. If the domestic car industry is to survive, it will have to downsize to match its market. Once that is accomplished, it will be less of a buyers’ market and the manufacturers and dealers will be able to raise prices. The situation isn’t that much different from the housing market.