WESTLAKE VILLAGE, Calif.: 10 December 2015 — The Federal Reserve is expected to raise interest rates on Dec. 16. To understand the potential effect of this on US consumers, J.D. Power conducted a pulse survey of 2,301 Americans to learn how a rate hike may affect their purchase decisions. The following are some of the key findings:
• More than three-quarters of consumers (77%) surveyed are aware of the possible rate hike.
• More than one-third of respondents (36%) feel a rate increase would be good for the economy.
• If the Federal interest rate increased by 0.5%, 75% of respondents would not change their discretionary spending habits.
• Consumer perception is that a 0.5% increase in the Fed rate would translate to almost a 1.0% increase in car loan interest rates. J.D. Power data indicates that historically car loan interest rate increases have more closely correlated to the rate of the Fed increase.
• The majority of consumers are unlikely to change their vehicle buying habits based on a relatively small hike in interest rates:
o If the Federal Reserve raised interest rates by 1% (which is at the upper end of expectations), 80% of consumers in the market for a new vehicle said they would not change their buying intentions, 13% said they would look for a cheaper car and 7% would consider a used car.
Based on J.D. Power econometric analysis of historical consumer behavior in response to changes in the cost of buying and financing new vehicles, a 0.5% increase in consumer auto loan rates will reduce demand for new vehicles by an estimated 150,000 units over the course of a year. If Federal rates do increase, the auto industry will need to determine whether to accept the potential sales risk or take action to protect sales by not passing the additional costs on to consumers. Tools at their disposal include: reducing prices, increasing incentives and subventing interest rates.
The pulse survey was conducted Dec. 4-7 among consumers who are considering a new-vehicle purchase within the next 12 months.