Higher interest rates and hampered consumer access to credit, which have been sources of concern for U.S. franchised auto dealers for much of this year, receded from their worries in the fourth quarter, according to a newly released survey by Cox Automotive.
One likely reason? Vehicle incentives have increased for many brands, offsetting higher finance costs.
At the same time, consumer interest rates have begun to fall.
In the latest Cox Automotive Dealer Sentiment Index survey, just 9 percent of the car dealers surveyed said that interest rates are holding business back, down from 17 percent in the third quarter and 38 percent one year ago.
That improvement in retailer outlook marked the biggest year-over-year change in dealer attitudes, according to Jonathan Smoke, chief economist at Cox Automotive.
"It's quickly gone from something that they were really worried about to something that's not even on their radar," Smoke said.
It has helped that rates have been falling this year. The Federal Reserve slashed its benchmark interest rate three times this year — in August, September and October. That Fed rate currently ranges between 1.5 percent and 1.75 percent. The benchmark rate directly impacts auto finance interest rates, as well as the rates charged on dealership floorplanning expenses.
By comparison, in 2018, the nation's central bank hiked rates four times, starting the year at a range of 1.25 percent to 1.5 percent, and concluding 2018 with a range of 2.25 percent to 2.5 percent.
Concerns over credit availability for consumers also cooled in the fourth quarter, with just 15 percent of surveyed dealers identifying it as a business challenge, compared to 23 percent last year.
But not all retail customers are feeling the benefits, Cox found. Interest rates around the country have not changed noticeably for average consumers yet. And based on the rates being charged around the market, even after the federal cuts, high subprime auto loan rates are continuing to make it difficult for many consumers to obtain financing, Smoke believes.
"If you're going to isolate consumers who have actually seen benefit from lower interest rates, it's prime and superprime consumers who are principally buying new vehicles," Smoke said. "We've actually been seeing subprime with dramatically higher interest rates."
