New automobiles are once again available, but Americans may not be able to purchase them

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Last Updated on October 9, 2022 by Bitfinsider

As supply chain bottlenecks begin to relax, there is a gradual increase in the availability of new cars. However, a growing percentage of Americans may no longer desire or be able to buy them.

As a result of the Federal Reserve’s aggressive rate hikes to combat inflation, consumers are finding that the cost of financing a new vehicle is suddenly much more expensive than it was earlier this year. This is anticipated to reduce demand and increase the burden on the auto sector, which was already grappling with low inventory as a result of the pandemic.

“The irony for the auto market is that just as the sector is prepared to start seeing volumes improve from recession-like low levels, the quick change in interest rates is limiting demand,” Cox Automotive Chief Economist Jonathan Smoke wrote in a Wednesday blog post.

At the end of the third quarter, Cox Automotive discovered that the new vehicle loan rate was 7 percent, an increase of 2 percentage points annually. According to Cox Automotive, the loan rate for used vehicles increased by the same amount to 11%.

The increased cost of auto finance comes at a time when household budgets are already being strained by decades of rising inflation. This means that many Americans may no longer be able to afford the newly arriving vehicles on dealer lots.

And it is anticipated that financing expenses will continue to rise. Already this year, the Fed has rapidly hiked interest lending rates to between 3 and 3.25 percent, and it has suggested that it will continue to do so until the fed funds rate reaches 4.6% in 2023.

Costs might be countered by financing agreements and discounts, but corporations have promised not to return to reductions in light of record earnings.

Fleet and commercial sales surged significantly during the third quarter, indicating that consumer demand may be diminishing. This is worrisome since retail sales to customers are more profitable, and automakers had anticipated that pent-up demand from the epidemic would continue in the foreseeable future.

However, Kristin Dziczek, automotive policy advisor for the Detroit branch of the Federal Reserve Bank of Chicago, stated that fleet sales are not always as negative an indicator as in the past.

She added that many government and large commercial fleets are paying sticker price for battery-electric and hybrid vehicles to meet local pollution regulations.

The increase in fleet orders coincides with the recovery of inventory levels from historic lows.

According to BofA Securities, total automobile inventory reached 1.43 million units at the end of September, the highest level since May 2021 and an increase of 160,000 units from the end of August.

Analyst John Murphy wrote in a note to investors on Wednesday, “We continue to believe that the sales slowdown over the past year-plus is a result of insufficient inventory.”

However, he also cautioned that demand could decline due to inflation, low consumer confidence, and fears of a recession.

Cox recently dropped its new vehicle sales prediction for the year from 14.4 million to 13.7 million, a level not seen in a decade, mostly owing to the Fed’s policies. Smoke stated that at this rate of sales, lesser production and earnings could further strain the supply chain, which could result in additional bankruptcies and stock outages.

In the meanwhile, though, price hikes for new automobiles have slowed. J.D. Power reports that the average price of a brand-new automobile increased by 6.3% in September to beyond $45,000. Earlier in the year, prices reached record highs of 17.5% and 14.5% increases.

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