The United States has experienced record auto sales for two out of the past three years, but there have been warning signs that the trend won’t continue.
While sales dipped slightly in 2017, it appears the 2018 could be slightly worse as several dealers told CNBC they seen sales drop off recently. The numbers vary by dealer and location, but one person told the publication that their car sales were down 12 percent while truck sales were off by 23 percent.
Sales had been expected to drop this year, but there are new issues which could make the problem worse than expected. As CNBC notes, the Federal Reserve has been raising interest rates and this has helped to push the average interest rate on new vehicles from 5.2 percent last year to 5.76 percent this year. That doesn’t seem like a huge increase, but it’s important to remember the average new vehicle loan hit a record of $31,455 this summer.
Using those numbers, shows a $31,455 five-year vehicle loan would have a monthly payment of $596.48 at least year’s rates. Today, the same loan would have a monthly payment of $604.61. This means consumers would end up spending almost $500 more to pay off the loan. That’s not a ton of money considering the loan is for $31,455 in the first place, but it illustrates how increasing interest rates can affect consumers.
Besides raising interest rates, there are a flood of off-lease vehicles hitting the market. Featuring low mileage and significant savings over new models, these used vehicles could tempt new car buyers into purchasing a slightly older model instead.
These issues are certainly there, but new car sales haven’t fallen significantly – at least not yet. According to projections, auto sales are once again expected to exceed 17 million units this year.