Auto sales dinged as interest rates spike

With prices for new vehicles near record highs, rising interest rates have made buying a car even costlier for consumers.

Higher rates continued to drag on new-vehicle sales in September with the average rate on a loan climbing one percentage-point, according to analysts at Edmunds. The car-shopping website said Tuesday annual percentage rates (APRs) on a new-vehicle loan averaged 5.8 percent during the month, up from 4.8 percent a year ago. Interest rates have topped 5 percent in eight consecutive months.

“The trickle-down effect of elevated interest rates really started hitting car shoppers in September,” Jeremy Acevedo, Edmunds’ manager of industry analysis, said in a report. “Buying conditions are far less amenable for consumers than they were before, which might come as a shock for shoppers coming back to the market for the first time in a few years.”

Several major automakers reported sharp declines in U.S. sales in September.

Ford said Tuesday its monthly sales dropped 11.2 percent, noting that Hurricane Harvey stoked demand for replacement vehicles in the year-ago month. The automaker also said Hurricane Florence, which hit the East Coast last month, impacted sales. Toyota (10.4 percent) and Honda (7 percent) also recorded monthly sales declines. Fiat Chrysler bucked the industry trend, saying its U.S. sales rose 15 percent amid strong demand for Jeep and Ram models.

General Motors, which issues quarterly reports, said its sales were down 11 percent in the third quarter due to the impact of hurricanes both this year and in 2017.

Buying a new car, truck or SUV has become less affordable as sticker prices and interest rates climb. Manufacturers are also offering fewer promotional loans with zero percent rates, while loan terms narrowed to 68.7 months on average last month. Based on Edmunds data, the availability of zero percent finance loans slipped to its worst September level since 2005.

In order to offset rising costs, consumers have opted to put more money down and keep their monthly payments in check. The average down payment last month surged nearly 10 percent to $4,198, according to Edmunds.

The upswing in auto loan rates has coincided with the Federal Reserve’s decision to raise its benchmark short-term rate three times this year. The central bank expects to hike rates again in December, followed by three additional increases in 2019. Hikes to the federal funds rate leads to higher borrowing costs for consumers.

Acevedo said the Fed’s rate-hike plans mean consumers should expect loan rates to inch up during the coming months. Strong employment trends have supported auto sales, but “cheap and easy credit is really what shoppers zero in on when purchasing a new vehicle,” he said.