Concerns about interest rates cooled for franchised U.S. auto dealers in the second quarter, according to Cox Automotive, even though concern over access to credit ticked up.
Although interest rates remained the third most significant factor holding business back for dealers, fewer respondents of the latest Cox Automotive Dealer Sentiment Index survey said interest rates were a concern, at 26 percent, compared with the first quarter, at 36 percent.
The change in attitude was likely due to dealers having more time to adjust to the last interest rate increase, which occurred in December, according to Jonathan Smoke, chief economist at Cox Automotive. After raising rates for five straight quarters, the Federal Reserve agreed March 20 to maintain its benchmark interest rate of 2.25 to 2.5 percent and said it was unlikely to raise rates this year, a change from its forecast of two increases in 2019. The benchmark rate directly impacts auto finance interest rates.
Still, Smoke was surprised that dealers' stance on interest rates had relaxed. Mortgage rates fell dramatically in the first quarter, Smoke said, which made the slight uptick in auto loan rates seem more alarming. According to Experian, the average interest rate for new-vehicle loans was 6.16 percent in the first quarter, up 99 basis points, while the average interest charged on used-vehicle loans was 10.06 percent, up 88 basis points.
Federal Reserve Chairman Jerome Powell indicated that lowering the benchmark rate was a possibility if trade war concerns jeopardized economic growth, according to The Wall Street Journal.