Affordability emerges as a headwind

September U.S. sales fell for most major automakers from the post-Hurricane Harvey bump a year ago. But another factor is emerging as a headwind to sales: affordability for some new-vehicle shoppers.

As vehicle transaction prices and interest rates keep rising and automakers reduce incentives, analysts and dealers are signaling that the resulting higher prices for consumers could be hitting a critical point, if they haven't already.

"We've seen more of a shift to leasing because leasing payments tend to be less than buy or purchase monthly payments," said Wes Lutz, chairman of the National Automobile Dealers Association and owner of Extreme Dodge-Chrysler-Jeep-Ram in Jackson, Mich.

But higher prices are hitting leases, too. Jonathan Banks, vice president of vehicle valuations and analytics at J.D. Power, said customers who leased at the ideal time — three years ago, when interest rates were lower and residual values were higher — are returning to the market at the worst time.

"There's a lot of consumers that are kind of screwed," Banks said. "You come back to market, you're paying $299 or whatever for your Fusion or Camry, and now they want $399. That's a big deal."

But if affordability is a growing problem, automakers aren't widely sounding the alarm.

While noting that affordability seems to be talked about "on an almost daily basis," Jack Hollis, Toyota Division general manager, said key economic factors such as job growth and consumer confidence remain high. More discretionary income seems to be available to buyers, he said, and Toyota has a range of models at a variety of prices.

"Affordability is in the eye of the beholder," Hollis said during a call with reporters after Toyota Motor Sales posted a 10 percent decline in September, led by a 25 percent plunge in car sales.

While acknowledging increased interest rates, Bryan Bezold, Ford Motor Co.'s senior Americas economist, said they have been offset by low unemployment, modestly growing wages and general consumer confidence.

"Rising interest rates do represent a headwind to customers and firms, but that headwind is small in context of the overall economic backdrop," Bezold said during a call with reporters to discuss Ford's 11 percent September dip.

Industrywide, the average transaction price for a new light vehicle rose 2.3 percent in September to $33,436, according to ALG. Incentive spending in the U.S. across all automakers dipped 2.7 percent for the month but was still up 3.9 percent year to date, according to analysis from Autodata.

Meanwhile, the Federal Reserve on Sept. 26 raised the benchmark interest rate a quarter point to a range of 2 to 2.25 percent. It marked the third time it has raised the rate in 2018, and more increases are expected in 2019.

In September, the annual percentage rate on financing for new vehicles averaged 5.8 percent, vs. 4.8 percent a year ago, according to Edmunds. Average down payments rose to $4,198, compared with $3,817 in September 2017. And the availability of 0 percent loans fell to 5.6 percent, compared with 10.1 percent a year ago, marking a 13-year low.

The trickle-down effect of those higher rates started hitting car shoppers last month, said Jeremy Acevedo, Edmunds' manager of industry analysis.

"While new-vehicle prices continue to rise, favorable credit offerings are growing increasingly more difficult to come by," Acevedo said. "Buying conditions are far less amenable for consumers than they were before, which might come as a shock for shoppers coming back to the market for the first time in a few years."

Beyond affordability, September's sales decline was expected. In fact, the 5.5 percent drop for the month was less than analysts' forecasts of a 7 percent skid. Despite the decline, it marked the fourth-best September on record in terms of sales volume.

New-vehicle sales remain relatively strong, on pace for a fourth consecutive year of more than 17 million. Through the first nine months of 2018, volume is up 0.5 percent.

The seasonally adjusted annualized rate of sales for September was 17.54 million, the highest of the year so far but down from the 18.2 million rate in September 2017, when sales were inflated by shoppers buying replacement vehicles after Hurricane Harvey flooded large portions of Texas.

Consumers' continued shift away from cars in favor of light trucks during the month was no surprise, either. Car sales dropped 20 percent, while light-truck sales climbed 2.2 percent, and buyers' taste for trucks was evident across automakers' sales results.

FCA US, the only major automaker to post a gain, outsold Ford Motor Co. for the first time since November 2015, on an increase of 15 percent to 199,819 vehicles. The result was led by 41 percent growth for Dodge, and by a 9.2 percent rise for Ram en route to its best September since the brand was carved out of Dodge in 2009.

Ford's 196,496 deliveries included an 8.8 percent decline for its high-volume F series, snapping a 16-month streak of year-over-year growth for its full-size pickups. At the same time, the F series' average transaction price climbed $1,000 to a record $46,600.

Nissan North America's sales fell 12 percent, with car deliveries dropping 35 percent, while light-truck volume grew 5.9 percent.

General Motors, which no longer releases monthly tallies, had an estimated 16 percent decline in September. GM said its third-quarter deliveries fell 11 percent, with all four of its U.S. brands off for the period. American Honda sales fell 7 percent, with a 20 percent decrease in car deliveries.

Volkswagen brand's eight-month streak of sales gains ended with a 4.8 percent decline in September. Subaru extended its streak of monthly gains to 82 with a 3.5 percent increase, even though six of its eight nameplates declined.

Among luxury brands, sales rose 1.3 percent for BMW, and fell 9.8 percent for Mercedes-Benz (excluding vans), while Audi's sales inched up 0.2 percent and Volvo's grew 10 percent.