Buying a car is getting pricier
Rising interest rates taking a toll on buyers.
Rising interest rates and higher prices are beginning to throttle U.S. auto sales.
While the industry remains solidly profitable amid a strong economy, shoppers bought fewer vehicles in October than they did a year ago, according to analyst estimates.
One big reason: New-vehicle interest rates neared a 10-year high, according to Edmunds analysts.
“Interest rates are taking payments up, along with higher transaction pricing,” Mark LaNeve, Ford’s U.S. vice president of marketing, sales and service, said on a conference call.
Rising wages are helping some buyers afford the extra payments, LaNeve said.
Still, Edmunds and Cox Automotive projected U.S. auto industry sales declines of 2.1 percent and 1.9 percent, respectively, for October.
Ford, Honda and Nissan recorded sales declines of 3.9, 4.1 and 10.6 percent, respectively, General Motors, which doesn’t report monthly figures, was likely down between 8.8 and 9.4 percent, according to projections.
But Fiat Chrysler, Toyota, Subaru, Volkswagen and Kia posted sales increases of 15.7, 1.4, 2.5, 4.6 and 1.6 percent, respectively.
Tesla, which doesn’t report monthly figures, is gaining ground. The company sold an average of 28,000 vehicles per month in the third quarter, a rate that’s speeding up as Tesla increases its manufacturing pace.
By comparison, the company sold more U.S. light vehicles than Mercedes-Benz in the third quarter.
Despite some positive news, U.S. car shoppers are increasingly shying away from buying new vehicles.
Interest rates on new vehicles averaged 6.2 percent in October, up 1.3 points from a year earlier and marking the highest rate since January 2009, according to Edmunds.
Only 3.8 percent of buyers got 0 percent interest loans in October, down from 7.5 percent a year earlier, Edmunds reported.
The Federal Reserve’s interest rate increases, which are aimed at preventing the economy from overheating, have led to higher borrowing costs for shoppers.
“It’s getting harder and harder for shoppers to afford a new car, and if the economy starts to slip, we’re at a point now where we really could start to see some significant impacts in the auto market,” Jeremy Acevedo, Edmunds’ manager of industry analysis, said in a statement.
The average transaction price of a new vehicle sold in October was $37,007, up 3 percent from a year earlier, according to Cox Automotive.
One big factor: Americans are buying more SUVs and crossovers, which are more expensive than the passenger cars they’re ditching. That pushes the average up.
Also, the emergence of Tesla’s Model 3 electric car as a significant force in the market for luxury sedans is beginning to push industry average prices higher. The car’s starting price in the third quarter was $49,000.