Will 2018 Be The Year That Interest Rate Hikes Crush Auto Sales?

We've long argued that elevated auto sales in the U.S. are nothing more than yet another debt bubble resulting from perpetually low interest rates and a gradual loosening of underwriting standards, primarily coming in the form of longer loan maturities. Now, asBloomberg points out today, more and more wall street analysts are suddenly starting to question whether 2018 might be the year that interest rate hikes from the Fed finally crush auto sales.

As the Chief Economist of Cox Automotive notes, "monthly payments matter"...and with each 25bps hike from the fed resulting in $8-$20 worth of higher monthly payments one can quickly understand why the notion of three rate hikes in 2018 might start worry auto OEMs...

“Consumers could face slightly higher costs for all their borrowing: credit-card balances, student loans, financing a house or a car,” said Charlie Chesbrough, senior economist at Cox Automotive, which owns websites including Kelley Blue Book and Autotrader. “At the same time, higher rates drive up the cost to provide low-rate financing, which eats into profit margins and hurts the carmakers as well.”

“The monthly payment matters,” said Jonathan Smoke, Cox’s chief economist. “When rates rise, many consumers do not have an option to pay more. We believe higher rates have already led the automotive market to see some shift” toward used-vehicle purchases instead of new ones.

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