US auto sales dropping for the first time in years will be further hit if interest rates rise as expected.
Few analysts anticipate sales this year will reach 17 million vehicles, just achieved for a third straight year and only the fifth time in history, Bloomberg reports.
The Federal Reserve forecasts three rate rises this year, restricting the free-flowing credit which helped fuel the record demand growth just ended.
“Consumers could face slightly higher costs for all their borrowing; credit card balances, student loans, financing a house or a car,” Cox Automotive senior economist Charlie Chesbrough says. “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 central bank, which increased rates three times last year, raises them to keep the economy from overheating and leading to high inflation. For consumers, those protective measures make taking on new car loans or leases more expensive.
There’s already a shift toward used-vehicle purchases instead of new ones.
President Donald Trump signed a tax bill into law last month which could help offset the interest rate rises and keep encouraging consumers to buy new vehicles for a while, perhaps seeing another year of growth in trucks, SUVs and luxury cars.
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