Fed rate cut means more auto sales

WASHINGTON -- In a favorable move for auto sales, the Federal Reserve cut short-term interest rates another 50 basis points, or -percent, on Nov. 6.

That was the 10th rate cut this year, for a total of 4 percentage points, and the third -point cut, post-Sept. 11. The move takes short-term interest rates to their lowest level in 40 years.

"Heightened uncertainty and concerns about a deterioration in business conditions both here and abroad are damping economic activity," the Federal Open Market Committee said in a statement.

Lower interest rates stimulate auto sales by making it cheaper to borrow money. Besides the direct effect on consumer loans, cheaper money also makes it more economical for automakers to offer incentives, like the present wave of zero-interest loans. A rough rule of thumb says that every -point cut in rates adds another 100,000 auto sales annually.

You can reach Jim Henry at autonews@crain.com

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