The Federal Reserve is set to wrap up its December monetary policy meeting today, possibly capping the two-day discussions with a half-point or three-quarter-point reduction in the fed funds rate. Either one of those moves would result in record low rates.
But will that help the auto finance sector? I doubt it. The reason people aren’t buying cars is because they hesitate to plunk down $20,000 at a time when the economy is so shaky. It doesn’t matter much if the interest rate is 6%, 3%, or 0.5%.
It seems like our industry is really caught between a rock and a hard place. Vehicle sales have been slowing for months, and even low interest — or no interest, for that matter — will reverse the trend. For auto financiers, specifically, it appears that we’ll just have to hang tight until things improve.
I think folks are really trying to be ultra conservative right now and not spend or consider getting anymore credit than necessary. There maybe light at the end of the tunnel half way into the new year. Even with interest rates being reduced and a New President coming center stage in a month, things are not going to turn around that quick. We must stay as conservative as possible in this environment, we should all be able to ride out economic struggles.
If mortgage rates get down to 4.5% or so, we will see some movement in real estate. The bottom feeders are waiting for the bottom, not just in terms of home values, but in mortgage interest rates. For those who don’t live in the states most responsible for the “meltdown, CA, NV, AZ, and FL, I can tell you that the entire real estate market is paralyzed because no one knows what anything is worth. Transactions will gradually bring a sense of appropriate value to the market which will be beginning of increased activity.
I live in an “old Vegas” neighborhood and the neighborhood is full of foreclosures and for sale signs. Houses that were selling for $500000 – $600000. two years ago don’t even draw an offer? Appraisers have trouble coming up with comparable values and mortgage lenders don’t trust the appraisals any more than anyone trusts a Fitch rating these days.
Somehow we need to get the “pump primed.” Low mortgage rates would be a good start.
I agree with with the first poster – in the past several months the frozen auto ABS market has been having a greater impact on rates/terms being offered by lenders than a fed fund rate move will have.
If that’s the case (and I don’t disagree that it is), it seems like we should expect more consolidation as auto lenders are either acquired or are forced to shut their doors.