Interest rates are rising, which means lenders may rethink the generous auto loan credit standards that have stimulated sales for the last five years.
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First, the good news.
Americans bought more than 17 million new cars and trucks for the third straight year in 2017. More of them were high-profit pickups that are selling for higher prices than ever before. Consumer sentiment also remains high.
Now, the warning signs.
Interest rates are rising, which means lenders may rethink the generous auto loan credit standards that have stimulated sales for the last half-decade.
There also will be a surge of leased vehicles returning to auctions this year, which could drive down the price of 3- and 4-year-old cars, especially sedans and some crossovers. Some shoppers will be tempted to choose nearly new over new.
The Federal Service raised short-term rates three times in 2017, most recently in December from 1.25% to 1.5%. The Fed is expected to hike rates two or three times this year.
« Rising interest rates haven’t hit the market yet, » said Charles Chesbrough, senior economist for Cox Automotive, « but sooner or later they will. »
Tax reform will be a mixed blessing. Some high-income consumers will see a little more money in their paychecks.
« The flip side is we may see stronger economic growth and that could force the Fed to be more aggressive in raising interest rates, » Chesbrough said.
Ford’s December sales tick up slightly, fueled by F-150; FCA, GM and Toyota down
November car sales: Fiat Chrysler down 4%,GM slipped 2.9%, Ford up 6.7%
While those who can afford it are paying record prices for new vehicles — the average selling price surpassed $36,000 in December, a record, according to Kelley Blue Book and Edmunds.com.
But manufacturers are offering about $4,000 per vehicle in incentives to move vehicles.
Even so, most economic forecasters estimate the industry will sell between 16.5 million and 16.8 million new vehicles this year. For anyone who can recall the dark days of 2009 and 2010, that’s a banner year.
While crude oil prices rose above $60 a barrel in the last week, there is scant evidence that demand for pickups is likely to wane in the near term. Ford sold nearly 90,000 F-Series pickups in December.
Chevrolet will take the wraps off its redesigned Silverado, and Fiat Chrysler will unveil a new 2019 Ram pickup next week at the Detroit auto show.
Somewhat more concerning is the steady growth of ride-sharing Lyft and Uber and short-term vehicle rental (think ZipCar or General Motors’ Maven), meaning that most everyone who needs a vehicle has one or has access to one.
The ratio of vehicles to registered drivers hit a record high of 1.26-to-1 in 2017, according to Jessica Caldwell, executive director of industry analysis at Edmunds.com. That is up from 1.1-to-1 in 2011.
« That probably reflects the growth we’ve seen over the last seven years, and it can’t go on forever, » Caldwell said.
Then there is the prospect of fleets of autonomous ride-sharing vehicles that General Motors and others say could be deployed in major U. S. cities by 2019. Will mobility as a service encourage a significant number of consumers to reject car ownership?
« I think that kind of impact is still a ways off, » Caldwell said. « But in 2017 we did see daily rental volume drop. Now part of that was automakers trying to reduce their fleet sales, but part of that is because of ride-sharing and car subscription services that luxury brands are offering in select markets. »
