Rising interest rates means less demand for new vehicles, but demand was already dwindling before the rate hikes, said Michael Vogan, assistant director and lead auto economist at Moody’s Analytics.
“All signs appear that we’re at the end of the current cycle and we’re coming down from the peak we saw with 17.3 million units sold in 2016,” Vogan told attendees during a presentation at the Auto Finance Performance and Compliance Summit. “Even without interest rate hikes, we were forecasting that new vehicle sales would decline.”
A lot of the pent-up demand following the great recession has been satisfied, he added, and many of those consumers were put into long-term loans and won’t be looking to buy a new car for a while yet.
There’s also a debate about how much interest rates will rise and by how much. Moody’s projects interest rates will rise quickly in the short term because historically, the Federal Reserve has been slow to act and winds up having to correct quickly with a bigger spike in rates. However, other models project a steadier climb.
“Interest rates are going to rise,” Vogan said. “They have been rising and they will continue to rise as the economy is heating up.”
Watch a clip of Vogan’s presentation below from the 2018 Auto Finance Performance and Compliance Summit. This is a running video series from the conference, and you can check out more clips here.