LOS ANGELES -- When the Federal Reserve pushed down interest rates Friday and most banks quickly lowered their prime rate to 8 percent, from 8.5 percent, the cost of buying a new Nissan from Jerry Heuer also dropped.
Heuer, vice president of a company that owns 10 dealerships here and sells cars including top-of-the-line Mercedes-Benzes and inexpensive Hyundais, figured that if interest rates on auto loans follow the discount rate and fall half of 1 percent, the typical buyer of, say, a Nissan Maxima will save about $15 a month in payments. That should entice more people to drive cars off his lot, he hopes.
"It's not so much the $15, but the psychology of it," Heuer said. "Car purchases are emotionally based. When people feel good about the direction of where the economy is going, they are much more likely to make a purchase."
Other retailers, bankers and executives in businesses where purchases are made on credit are hoping that the lower interests rates will stimulate spending by making borrowing more affordable.
But many other executives say consumers will not resume spending until layoffs subside and Americans feel more secure about their futures.
Some executives also say banks must loosen their lending policies.
"Psychologically, anything that helps people feel more positive is good, but I wouldn't think there is much real direct correlation between the Fed and our business," said Robert J. Ulrich, chairman and chief executive of the 400-store Target discount chain, which operates in many parts of the country.
And Thomas W. Smith, a spokesman for Lowes Cos. of Wilksboro, N.C., which operates 307 building materials stores in the Southeast, observed, "Generally speaking, people are still concerned about their home budgets."
Yet Nathan Morton, president and chief executive of CompUSA Inc., a Dallas-based chain of 20 computer stores, said, "This is going to help us." He predicted that many businesses would review their decisions to put off purchases and would return to his stores.