Smoke expects higher interest rates and tighter credit this year will drive many consumers to buy a used vehicle instead of a new one. Most of those buying used cars will be millennials, who are often saddled with student loans and remain credit challenged, he said.
That will help to absorb some of the nearly 3.9 million vehicles that will come off lease in 2018, about a third of them crossovers, Smoke said.
Evidence shows the new-vehicle market is in good shape, he said. Consumer confidence remains at a 17-year high and vehicle demand appears robust. At year end, industrywide new-vehicle inventories were at a healthy 60-day supply. Strong fourth-quarter new-car sales and a scaling back of production by automakers reined in formerly troublesome inventory levels.
Last year, the U.S. Federal Reserve raised interest rates three times for a total of 75 basis points, and data show that auto-loan lenders have been tightening credit for six straight quarters, but auto loans for "superprime borrowers" increased by just 20 basis points, Smoke said.
The Fed has said it will raise rates three times this year. But it is unknown if the market can absorb those hikes as it did last year, meaning there is a chance auto loan rates will climb higher and faster this year than in 2017.
"The era of low interest rates is over," Smoke told Automotive News. "The key question becomes how quickly do interest rates move." If rates move up rapidly, "we have the potential of seeing new-vehicle sales challenged even more than we're already assuming," he said.
The economic recovery from the recession has been "extremely anemic," said AutoNation Inc. CEO Mike Jackson, who was appointed chairman of the Federal Reserve Bank of Atlanta effective Jan. 1.
On the fiscal side, "there were shackles on the economy," and in response, the Fed overcompensated by loosening monetary policy, Jackson said.
"You had a bifurcated recovery in America," he said. "If you had assets, stocks, real estate, you did extremely well in this recovery. However, since the core economy was only growing at 2 percent, [others] got left behind."
Through his new post at the Fed, Jackson plans to advocate for normalizing rates but at an appropriate pace, he said. "To raise rates too rapidly when you're finally going to have [significant] wage growth would be unfair."