FORT WORTH, Texas — As OEMs such as Ford Motor Co. announce the cancellation of certain car models, and Fiat Chrysler Automobiles pulls back the Chevy brand in the U.S to focus on Jeep and Ram, the industry had better pay attention to price tags, Chuck Berend, director of U.S. auto lending at BBVA Bank, told Auto Finance News.
“The thing that people should be concerned about is the sticker price of new cars, particularly as manufacturers are reducing the number of affordable cars they are making,” Berend said. “The average ticket on a car is just going to keep going up, and that creates a real problem — especially in a rising rate environment.”
Increasing car prices and higher interest rates are lengthening loan terms to an average of 69.0 months, up from 68.5 months last year. Longer terms increase the risk of negative equity, and even though that outstanding loan amount can be rolled into a new loan, eventually the cost will be too high and “something’s going to have to give,” Berend said.
OEMs could potentially produce more affordable cars to ease that transition. “If you’ve got Ford and Chrysler pulling back on affordable cars, does that mean that someone like Toyota will follow suit?” Berend said. “Or, does it mean that someone like Toyota will fill the gap and take price pressure off a Camry?”
