Rising interest rates and falling incentives are expected to combine to drive down new vehicle sales in 2019.
The Federal Reserve raised interest rates throughout 2018 and, as observers expect to confirm today, new vehicle sales rose year-over-year. However, experts predict that will be a one-time occurrence.
There was a dip in automotive interest rates at the end of the year to help with holiday sales. New vehicle rates averaged 5.9% in December, according to Edmunds.com, after averaging 6% in November, which helped drive a strong end to the year.
However, that average was largely driven by banks and other lenders rewarding buyers with excellent credit special low-interest loans rather than an overall shift downward.
Edmunds experts note that low interest rate finance deals can be attributed to this overall month-over-month dip. According to Edmunds data, 14% of buyers received rates below a 2% APR, compared to 12% of buyers receiving the same rates in November.
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“Holiday sales gifted car shoppers with another slight respite from record high interest rates in December, but in many ways this month was a curtain call for robust finance deals,” said Jeremy Acevedo, Edmunds’ manager of industry analysis.
New car sales are expected to fall in 2019 as incentives used to draw in buyers in 2018 continue to disappear.
“With the holidays behind us and the most recent Fed rate hike kicking into effect, automakers won’t be as inclined to move mountains in the new year, so shoppers can expect average APRs above 6% to be the new normal.”
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Once a reliable staple on new vehicle financing, buyers can expect to see incentives like zero-percent financing basically disappear in 2019, Edmunds experts predicted. They suggest falling incentives and rising interest rates will threaten to derail industry sales in 2019. According to Edmunds data, zero percent finance loans remained flat month-over-month, but at 5.5% hit their lowest December level since 2005.
“Rising interest rates will be one of the biggest factors influencing how the auto market fares in 2019,” Acevedo said.
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“Access to cheap credit has been a staple of the post-recession auto market and 2018 marked a tipping point for the industry. Interest rates in 2018 closed more than a point higher than they closed 2017, and rates are only going to continue to trend upward, which poses a real threat to shopper demand as we head into 2019.”