By on October 15, 2015

 

(Updated with comment from GoodCarBadCar’s Tim Cain)

Analysts at IHS Automotive says car sales may be nearing its peak and automakers may expect a downturn in sales by 2017 due to rising interest rates, Automotive News reported.

Strong demand for auto loans is starting to wane, banks are reporting, and a pending federal interest rate hike could push some buyers out of the market, the agency reported.

After 2017 “credit markets are going to be much more difficult,” Charles Chesbrough, IHS senior economist, told Automotive News. Most analysts predict that interest rates will remain where they are for the rest of this year but many anticipate a rate hike by March 2016.

According to the firm, car sales may peak around 2017 at 18.2 million cars before dipping slightly to 17 million by 2022. Automakers are on pace to sell 17 million cars this year, which would be a record.

Chesbrough added that carmakers are in better shape to withstand a downturn than they have been in the past. Carmakers have significantly trimmed production excess and labor costs since the recession, he said.

Automakers reported strong sales for September, which was the 19th consecutive month for sales growth.

Our own Tim Cain said a slowdown should be coming, rate hike or not:

Auto industry observers will have to get used to seeing, at the very least, a slowdown in growth. That won’t necessarily, at least at the start, imply lower volume. But the current rate of growth isn’t possible in perpetuity. In terms of lower volume, the industry will, after growth slows or stalls, see decreased sales as consumers who were “brought forward” with cheap money today won’t need to buy a car tomorrow.
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13 Comments on “Analyst: Car Sales May Peak By 2017, Rising Rates Could Impact Buyers...”


  • avatar
    VoGo

    We are in the seventh year of expansion, which indicates the US is due for a recession in the next few years.

  • avatar
    bikegoesbaa

    Are people really that sensitive to the interest rates on auto loans?

    Most people I know who financed cars don’t appear to even know what their interest rate is, they just care about the monthly payment.

    Financing $25,000 for 5 years 2% interest gives a payment of $438 and a total interest cost of $1,300. Bump the rate to 4% and the payment goes to $460 and the total cost becomes $2,600.

    Not a negligible increase, and one that the financially savvy would try to avoid. But how savvy is the average car buyer, especially the average “Credit challenged” car buyer?

    I don’t see those numbers as being enough to bump from the market somebody who is otherwise willing/able to pay the cost and take the losses associated with financing a new car.

    Am I underestimating the significance of interest rate on purchase decisions?

    • 0 avatar
      sproc

      I’m with you. If people are that sensitive to monthly payment (with little regard to total interest paid), won’t they just stretch that 5 year note to 72 or 84 months to meet their monthly target?

      • 0 avatar
        hreardon

        Exactly, sproc. That’s what they’re doing now.

        What will happen is what has always happened: there will be a (modest) slowdown in sales, the number of longer terms will increase, consumers may buy lower priced, lower trim models, and manufacturers will increase incentives/reduce content to compensate.

        Nothing terribly shocking in any of this.

  • avatar
    28-Cars-Later

    “a pending federal interest rate hike”

    Which will probably never happen and if it does it will be a token .25% but people will act like the sky is falling.

    Did you know Fair Issac adjusted its FICO algorithm to treat medical debt differently and ignore collections debt that gets repaid so some would have a higher score and thus incur more debt?

    http://www.dallasnews.com/business/columnists/pamela-yip/20140810-big-changes-in-how-widely-used-credit-score-treats-medical-debt.ece

    on debts and interest rates:

    ACE ROTHSTEIN: But what happens when they do find out?
    ANDY STONE: Why would they want to find out? We’re putting a hundred million into this desert here. Why would they want to lock us out? …

    • 0 avatar
      bikegoesbaa

      Are you sure that this was not because the actuarial risk represented by medical debt and debt that has been repaid is actually lower than non-medical debt that was not repaid?

      If they wanted to get people more in debt why not just extend more credit rather than going through the trouble of adjusting the algorithm in order to increase scores in order to justify more debt? Seems like a roundabout way to do it.

      • 0 avatar
        28-Cars-Later

        Honestly I wasn’t there so I don’t know the true reasoning, and it just may have been coincidental timing. What it will do however is slightly raise the credit scores of 1. people with large medical debt, so frequently older people who may statistically better credit risks and 2. people who have debt who went to collections, who statistically are probably good consumers with bad choices they cannot afford. Under their old algorithm they penalized this and they did it for a logical reason. Repealing this suggests to me they want to allow these people to consume whereas previously they may have been denied.

        • 0 avatar
          bikegoesbaa

          I think you are assigning an underhanded motive to a straightforward change.

          It is to the benefit of both lenders and borrowers for interest rates to reflect the true risk that a given borrower represents.

          Yes, of course lenders want people to take loans and pay interest. This is why they exist.

          This does not mean that refining their algorithm is a clever scheme to trick people into taking out loans that they cannot afford.

          It’s just building a better model that allows them to more accurately assess risk and therefore set rates more competitively.

  • avatar
    Cactuar

    “Strong demand for auto loans is starting to wane, banks are reporting, and a pending federal interest rate hike could push some buyers out of the market, the agency reported.”

    The new car buys who depend on low interest rates to make their monthly payments belong on the used car market.

  • avatar
    RHD

    When an interest rate “hike” does come, it will be small, and relatively inconsequential. The sky is not falling, and it ain’t gonna fall. If someone is looking for a car but can’t afford it because the interbank rate just went up a half a percentage point, they shouldn’t be looking for a new car, or should buy something about five hundred dollars cheaper, or negotiate the price down just a smidgeon.
    With VW sales falling, those buyers will go to a different dealership, and the other companies will benefit. So the predictions of doom and gloom carry just as much validity as those made by the religious wackos who foretold the end of the world last Wednesday.

  • avatar
    CJinSD

    Interest rates aren’t going anywhere. Inflation will not be acknowledged. Talking about rate hikes is only about driving demand today. The national debt is too high to pay interest on.

  • avatar
    50merc

    Yes, no one is more hooked on cheap borrowing than our sweet old profligate Uncle Sam.

    So in all likelihood the savers will continue to subsidize the spenders.

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