NEW YORK -- Interest rates should remain low for the rest of 2015, helping auto dealerships sell vehicles, experts say.
“Very low interest rates have been a great boon to the auto industry,” John Humphrey, senior vice president of J.D. Power’s global automotive practice, said at the NADA/J.D. Power Automotive Forum here last week.
He added in an interview: “Low interest rates have allowed consumers to not only buy cars, but to buy better contented cars at higher prices and bigger margins.”
Low interest rates also make it easier to get subprime loans approved, he said.
U.S. light-vehicle sales have grown steadily since the 2007-09 recession, reaching 16.5 million in 2014, up from 10.4 million in 2009.
Many economists expect the Federal Reserve to begin increasing interest rates in 2015, but at a far slower pace than previous economic recoveries. If interest rates rise too far, too fast, Humphrey said, consumers who make purchase decisions based on monthly payments could buy a lower-priced car or put off the purchase.
Low interest rates and longer auto-loan terms have largely offset higher transaction prices the past few years, keeping increases in monthly payments to a minimum.
From 2008 to 2014, the average rate for a prime-risk, 72-month auto loan fell to 3.7 percent, from 6.7 percent, Humphrey said. On the average new vehicle, that represents about $2,000 worth of purchasing power, he said.
According to Experian Automotive, the amount financed for the average new-vehicle loan reached a record $28,381 in the fourth quarter of 2014. That was an increase of $950, or 3.5 percent from the year-earlier period.
At the same time, the average new-vehicle monthly payment increased just 2.3 percent, to $482, from $471 percent in the fourth quarter of 2013.
The average rate on a new-vehicle loan was 4.56 percent in the fourth quarter, up just 0.19 percentage points from 4.37 percent a year ago.
Nariman Behravesh, chief economist at IHS, said his outlook for 2015 remains optimistic. “For the most part, for the U.S., the news is pretty good,” he said at the forum. Behravesh said he expects the Federal Reserve -- specifically the Federal Open Market Committee -- to start raising interest rates in mid-September or October and then continue to raise them “every second or third meeting” thereafter. The committee has eight regularly scheduled meetings a year; the last one for 2015 is set for Dec. 15-16.
The committee will raise rates “very, very gradually,” Behravesh said, adding: “Things tend to look very, very, bullish for the industry.”
You can reach Jim Henry at firstname.lastname@example.org