Rising interest rates were expected to hinder car sales this year, yet consumer anxiety over future rate hikes may be moving metal at dealerships, Jeremy Acevedo, manager of industry analysis at Edmunds, told Auto Finance News.
From a consumer standpoint, 2% interest rates aren’t enough to turn most away from expensive new vehicles, he said. The Federal Reserve raised interest rates 25 basis points in June, with plans to increase rates twice more before yearend. With the recent rate hikes and the news coverage surrounding them, consumers are moving to purchase new vehicles now before rates get higher, Acevedo said.
New-car sales increased 3.4% year over year in June bringing the seasonally adjusted annual rate to 17.1 million, according to an Edmunds report. Additionally, the Consumer Confidence Index reached an 18-year high in February and maintained those levels, relatively, in the following months. The index suggests consumer assessment of the economy is still relatively stable and that economic growth will continue. However, Acevedo still believes “the stage is set for a market contraction.”
As rates get higher throughout the year, there will start to be a turning point, Michael Vogan, the lead auto economist at Moody’s Analytics, told AFN. “Consumers could halt their buying behavior in the future, which is the result of consumers purchasing while prices are low,” Vogan said. “For the marginal consumer, that increase in monthly payment might influence their decision. But at a high level, from an economics and market perspective, the interest rate is the price of credit, so if the price of credit goes up, the demand for credit will go down.”