{"id":624386,"date":"2023-04-01T14:49:34","date_gmt":"2023-04-01T19:49:34","guid":{"rendered":"https:\/\/news.sellorbuyhomefast.com\/index.php\/2023\/04\/01\/car-dealers-say-high-interest-rates-top-issue-holding-back-business-how-much-can-the-consumer-take\/"},"modified":"2023-04-01T14:49:34","modified_gmt":"2023-04-01T19:49:34","slug":"car-dealers-say-high-interest-rates-top-issue-holding-back-business-how-much-can-the-consumer-take","status":"publish","type":"post","link":"https:\/\/newsycanuse.com\/index.php\/2023\/04\/01\/car-dealers-say-high-interest-rates-top-issue-holding-back-business-how-much-can-the-consumer-take\/","title":{"rendered":"Car dealers say high interest rates top issue holding back business: \u2018How much can the consumer take?\u2019"},"content":{"rendered":"

Just when it seemed like things were getting back to normal at Rhett Ricart\u2019s Columbus, Ohio, car dealerships \u2014 after pandemic-induced inventory\u00a0shortages<\/a>\u00a0and runaway price\u00a0inflation<\/a>\u00a0\u2014 a new obstacle emerged to keep buyers from closing the deal: soaring interest rates on auto loans.<\/p>\n

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\u201cThey get interest shock,<\/a>\u201d said Ricart, who owns stores that sell models by Ford Motor<\/a> Co., General Motors<\/a> Co., Nissan<\/a> Motor Co. and others. \u201cCustomers aren\u2019t shocked by the increased cost of the vehicle, they\u2019re shocked that they\u2019ve got to pay 7% or 8% to finance it. You\u2019re talking tons of money.\u201d<\/p>\n

As the Federal Reserve steadily\u00a0increased<\/a>\u00a0the federal funds rate over the last year to try to tame inflation, the average interest rate on loans for new cars jumped to 8.95% last month, up from 5.66% a year earlier, according to researcher Cox Automotive. That, along with average car prices that now approach $50,000, has driven auto loan payments to $784 a month on average, up about $177 a month since March 2020 when the pandemic began.<\/p>\n

Dealers now say interest rates are the No. 1 issue holding their business back, replacing inventory shortages and the economy as the top problems a year ago, a Cox survey of auto retailers showed. Those rising rates are sapping the market\u2019s momentum even as auto sales in the first quarter are expected to rise by as much as 7.3%, according to a forecast by J.D. Power and LMC Automotive.<\/p>\n

Many of the largest car companies, including General Motors and Toyota<\/a> Motor Corp., will report quarterly US sales results on Monday.\u00a0<\/p>\n

\u201cA lot of these things that appeared to be tailwinds at the very beginning of the year have rapidly turned into headwinds,\u201d Jonathan Smoke, Cox\u2019s chief economist, told reporters March 27. \u201cAnybody that tells you they have a firm view of where we\u2019re headed is, I don\u2019t know what, they\u2019re smoking something.\u201d<\/p>\n

On top of rising loan rates, the banking crisis triggered by the\u00a0collapse<\/a>\u00a0of Silicon Valley Bank<\/a> last month has further tightened credit, making it harder to qualify for a car loan.<\/p>\n

Yet automakers remain confident there are millions of buyers ready to flood dealer lots as pent-up demand is unleashed after years of supply shortages and pandemic-related factory and showroom shutdowns.<\/p>\n

The annual selling rate is expected to rise to 14.4 million in March, from 13.5 million a year ago, according to the average forecast of eight market researchers. Prior to the pandemic, annual US auto sales topped 17 million for five consecutive years.\u00a0<\/p>\n

\u201cConsumer confidence or at least consumer behavior, will still continue to be resilient,\u201d Chris Reynolds, Toyota\u2019s chief administrative officer in North America, told reporters. \u201cPeople still have money in their pockets, and they still want to buy cars.\u201d<\/p>\n

In fact, buyer confidence fell this month in the University of Michigan Consumer sentiment index.\u00a0<\/p>\n

\u201cA lot of the so-called pent-up demand has basically been destroyed because of the lethal combination of prices, interest rates and payments,\u201d Smoke said.<\/p>\n

Automakers are attempting to offset higher interest rates by offering discounted financing. Ohio dealer Ricart said Ford has made a big difference by offering 1.9% financing for 60-month loans on pickup trucks in his area.<\/p>\n

Eating profitability<\/h3>\n

Automakers\u2019 profits\u00a0swelled<\/a>\u00a0over the last three years as supply-chain snags caused inventory to dwindle and prices to hit record levels. Now that supply is catching up with demand, the companies are giving up some profit to try to keep cars affordable.<\/p>\n

\u201cWe can\u2019t pass on all of the costs, that means we\u2019re eating it in our profitability,\u201d Jack Hollis, executive vice president of Toyota\u2019s North American unit, told reporters. \u201cHow much can the consumer take, month after month of increasing\u201d prices?<\/p>\n

The semiconductor shortage that emptied dealer lots in recent years is fading as inventories rose 70% since this time last year, according to Cox. Cars are now sitting on dealer lots an average of 34 days before being sold. That\u2019s up from 24 days a year ago, data from automotive researcher Edmunds.com show.<\/p>\n

Those favorable factors are still being offset by rising interest rates. The interest paid on an average auto loan reached $8,764 in February, up from $5,395 a year earlier, according to Edmunds.<\/p>\n

\u201cIt\u2019s a daunting prospect to sign your name to a $40,000 loan in this environment,\u201d Jessica Caldwell, executive director of insights at Edmunds, said in an interview. \u201cPeople are going to look at the monthly payment and they\u2019re going to walk.\u201d<\/p>\n

In Columbus, Ricart is seeing buyers cancel orders for hard-to-get models that they they signed up for months ago, when financing was cheaper.<\/p>\n

\u201cWhen they ordered them the interest rate was 2% and now it\u2019s 8%,\u201d Ricart said. \u201cThey\u2019re going to end up paying a lot more for that vehicle than they\u2019d planned.\u201d<\/p>\n

\u2013With assistance from\u00a0Gabrielle Coppola.<\/p>\n<\/div>\n

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Subscribe to Well Adjusted, our newsletter full of simple strategies to work smarter and live better, from the Fortune Well team. Sign up today<\/a>.<\/p>\n<\/div>\n

Read More<\/a>
\n Keith Naughton, Bloomberg<\/p>\n","protected":false},"excerpt":{"rendered":"

Just when it seemed like things were getting back to normal at Rhett Ricart\u2019s Columbus, Ohio, car dealerships \u2014 after pandemic-induced inventory\u00a0shortages\u00a0and runaway price\u00a0inflation\u00a0\u2014 a new obstacle emerged to keep buyers from closing the deal: soaring interest rates on auto loans. \u201cThey get interest shock,\u201d said Ricart, who owns stores that sell models by Ford<\/p>\n","protected":false},"author":1,"featured_media":624387,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[34300,428],"tags":[],"class_list":["post-624386","post","type-post","status-publish","format-standard","has-post-thumbnail","category-dealers","category-interest"],"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/newsycanuse.com\/index.php\/wp-json\/wp\/v2\/posts\/624386","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/newsycanuse.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/newsycanuse.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/newsycanuse.com\/index.php\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/newsycanuse.com\/index.php\/wp-json\/wp\/v2\/comments?post=624386"}],"version-history":[{"count":0,"href":"https:\/\/newsycanuse.com\/index.php\/wp-json\/wp\/v2\/posts\/624386\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/newsycanuse.com\/index.php\/wp-json\/wp\/v2\/media\/624387"}],"wp:attachment":[{"href":"https:\/\/newsycanuse.com\/index.php\/wp-json\/wp\/v2\/media?parent=624386"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/newsycanuse.com\/index.php\/wp-json\/wp\/v2\/categories?post=624386"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/newsycanuse.com\/index.php\/wp-json\/wp\/v2\/tags?post=624386"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}