Why the Fed's rate cut won't immediately help car buyers or sales
DETROIT — The Federal Reserve’s decision to cut interest rates for the first time in more than four years is expected to eventually boost new vehicle sales, but not as quickly or by as much as some may expect.
DETROIT — The Federal Reserve’s decision to cut interest rates for the first time in more than four years is expected to eventually boost new vehicle sales, but not as quickly or by as much as some may expect.
The rate cut earlier this month by half a percentage point, or 50 basis points, will take time to trickle down to auto loan rates, which remain near decades-high levels of more than 9.61% for a new vehicle and nearly 14% for a used car or truck, according to Cox Automotive.
“If the Fed is accurate in their forecasts, we will be living with rates more than two and a half points higher than most of the last 24 years,” said Cox Automotive chief economist Jonathan Smoke. “In other words, conditions will be better than what we’ve endured for the last year, but affordability challenges will not be solved by this new path for rates.”
The biggest near-term improvement in auto loan rates isn’t expected until early next year, according to Smoke. He said that unlike the cost of home loans, which has come down in recent months, auto loan rate changes can be delayed because they’re really a function of longer-term bond yields that are based on loan performances.
Auto loan 30-day delinquency rates have risen considerably in recent years, according to a Thursday note from the Board of Governors of the Federal Reserve System. Although they remain below the peak levels of the Great Recession, as of the end of 2023, auto loan delinquency rates exceeded pre-pandemic levels by about 60 basis points.
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