Interest rate risk
Are GM, Stellantis car buyers more vulnerable to rising interest rates?
A Cox Automotive analysis of vehicle sale prices and average interest rates suggested certain GM and Stellantis brands had the greatest exposure to higher rates.
Cox Automotive in March argued that certain automakers' customers could be more exposed to rising interest rates on auto loans because of their brands' higher new-vehicle prices or higher average interest rates - or both. Cox assessed the risk based on 2021 data and a threshold it set of a $50,000 vehicle and a 4.5% interest rate.
Editor's note: This story has been updated with a Ford comment that was omitted from an earlier version of this story.
A Cox Automotive analysis of new-vehicle sale prices and average interest rates suggests certain General Motors and Stellantis brands have the greatest exposure to higher rates.
Cox's assessment March 28 came about two weeks after the Federal Reserve raised the federal funds' target rate to 0.25 to 0.5 percent, planned to sell debt holding and anticipated that "ongoing increases in the target range will be appropriate." The Fed's next meeting will be May 3 and 4.
Its actions trickle down to auto loan interest rates. Cox Senior Economist Charlie Chesbrough said monetary policy was changing and interest rates were likely to rise over the next couple of years.
For brands with higher transaction prices, "rate hikes may increase [customers'] monthly payments more," Chesbrough said on a Cox webinar. Customers of brands who have higher interest rates now "are likely more vulnerable" to future rate increases, he said.
Chesbrough showed the webinar audience a chart plotting automaker brands on an x-axis of their average transaction price in 2021 and a y-axis of the average interest rates customers received.
"We can see that some brands will be more vulnerable," Chesbrough said.
The average customer paid $42,989 for a vehicle at an interest rate of 4.42 percent in 2021, according to a Cox analysis drawing upon Kelley Blue Book and Dealertrack data.
The Cox chart assessed automakers whose customers' rates fell between 2 and 7 percent and whose prices ran between $30,000 and $70,000. This excluded some luxury brands, such as Porsche, but also mass-market brand Mitsubishi, whose average vehicle cost $26,481 and carried a 10.46 percent interest rate.
Instead of using the national averages, Cox established a threshold of a 4.5 percent interest rate and a $50,000 vehicle. Chesbrough said this translated into a $794 monthly payment for a 72-month auto loan.
Any automaker with higher prices or rates than the threshold could be at risk — and brands with both variables exceeding this level could be particularly exposed, according to Chesbrough. Brands posting lower numbers on both fronts carried less risk, he said.
Ram and GMC customers had transaction prices and interest rates exceeding both the national average and Cox's threshold. Ram averaged $56,181 and 4.91 percent, while GMC came in at $57,665 and 4.72 percent.
Dodge, Chevrolet, Jeep and Chrysler vehicles also had interest rates ahead of both the national average and Cox's 4.5 percent threshold, as well as prices exceeding the national average.
"With respect to [Cox's] interest rate analysis, the biggest impact on sales and share is vehicle availability, not the APRs offered by banks or captive finance companies," GM spokesman James Cain wrote in an email April 1. "Inventories are near historic lows, and pent-up demand is very high, which should help offset headwinds."
Chrysler Capital partner Santander Consumer USA referred inquiries to the automaker. A Stellantis spokeswoman said the automaker had nothing to share about strategies such as subvention or incentives but provided this statement: "As with all industry conditions, Stellantis continues to monitor market factors that may affect the company from achieving its strategic goals, and determines how to react and address, including offering incentives as one approach."
Ford also was near the threshold, with prices averaging $49,518 and interest rates averaging 4.27 percent. Ford Credit spokeswoman Margaret Mellott said she didn’t have any information on how Cox reached its conclusions.
“At Ford Credit, we account for potential interest rate increases in our business planning, and we’re constantly surveying\ the market and working to offer competitive rates for our customers,” Mellott wrote.
But mass-market automaker captive finance companies and other lenders are also retooling their average interest rates. Auto loan interest rates for new vehicles averaged 6.1 percent in January 2019, with a 2.3-point average deviation among automakers, according to Cox data. By January 2022, the spread had narrowed to an average 1.4-point deviation from the 4.3 percent national auto loan average rate.
"Brands are converging towards the nation's average," Chesbrough said. "This suggests that the market will be even more competitive going forward."
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