A finance manager employed by an automobile dealership believes that the number of cars sold in his local market can be predicted by the interest rate charged for a loan.
Interest Rate (%)
Number of Cars Sold (100s)
The finance manager performed a regression analysis of the number of cars sold and interest rates using the sample of data above. Shown below is a portion of the regression output.
1. Are there factors other than interest rate charged for a loan that the finance manager should consider in predicting future car sales?
2. Is interest rate charged for a loan the most important factor to be considered in predicting future car sales? Explain your reasoning.The dealership’s vice-president of marketing has requested a sales forecast at the prevailing interest rate of 7%.
3. As finance manager, what reasons would you convey to the vice-president in recommending this forecasting model?
4. Is the prediction of car sales at 7% a reflection of the current downturn in the economy? How might this impact the dealership’s business?