Rising interest rates could nick into U.S. new-vehicle sales and also cause auto dealers to stock inventory more selectively, according to National Automobile Dealers Assn. officials.
The trade group is predicting new-vehicle sales of 17 million this year and 16.8 million in 2019. (Slightly more bullish, Wards predicts 16.9 million.)
A headwind for consumers is rising interest rates for new-vehicle financing, says NADA’s senior economist Patrick Manzi. “Average interest rates on new-vehicle financing have risen 60 to 70 basis points from 2017 through the third quarter of 2018.
“That has really driven up the cost of borrowing. We expect interest rates to continue to rise.”
That and other economic factors, such as higher new-vehicle prices, could send many consumers “walking over to the used-vehicle lot,” Manzi says during a teleconference on the state of auto retailing. “We’ll see more consumers syphoned off to the used-car marketplace.”
NADA Chairman Wes Lutz says “edging-up” floorplan lending rates are causing him and fellow dealers “to become more disciplined in the level of inventory.”
When floorplanning rates were lower, dealers weren’t overly concerned with potentially stocking an abundance of vehicles, says Lutz, the owner of a Jeep, Dodge, Chrysler and Ram dealership in Jackson, MI. “(Rising) floorplan interest rates have got our attention again.”
Predicted new-vehicle sales of 16.8 million would make 2019 another robust year for the auto industry, but “price creeping” could take some consumers out the market, says Lutz, who sells twice as many used vehicles than new.
Manzi points to a continuing trend of consumers “abandoning the car segment” in favor of SUVs, CUVs and pickup trucks which collectively account for about 70% of the light-vehicle market share.
“We haven’t seen the bottom of the car market,” Manzi says. Asked how hard it is to sell sedans these days, Lutz says, “It’s tough.”
Something “interesting to watch” is an expected growth in electric-vehicle sales, Manzi says, while not expecting those to catch fire. EV market share no longer is fractional, but it’s still only 1.2%. Half of EV sales are in California.
A limited number of charging stations is one reason EVs have yet to catch on in the U.S., Lutz says. “There are 16,000 charging stations vs. 160,000 gas stations. And most of the EVs automakers have put on the market are sedans, which is not reflective of market (vehicle segment) demands.”