Car Companies Complaining about Interest Rates

I don’t often have much to say about macroeconomic issues, but an article “sounding the alarm” about how interest rate increases are affecting car companies drew a reaction.

“Aggressively raising interest rates has helped create an untenable situation in car financing.”

Good.  Financing a car is usually a mistake for the consumer.  When consumers’ credit is so bad that they can’t even get a car loan, it’s even clearer that they shouldn’t buy the car.

“The auto sector is one of the victims of the aggressive interest rate hikes.”

Ridiculously low interest rates have allowed car companies to inflate prices and sell ever more cars to people who can’t really afford them.  The fact that the party is ending doesn’t make car companies victims.  Conditions are just slowly getting back to normal.

“Rising interest rates will make consumers reevaluate their decisions before quickly jumping into a car loan.”

Good.  It’s sad when people bury their financial future by buying an expensive vehicle they can’t really afford.  If you’ve got the money, go ahead.  If not, consider a cheaper vehicle or other means of transportation.

“The average annual percentage rate (APR) for financing a new vehicle purchase climbed to 6.3% in October 2022, compared to 4.2% in October 2021, the highest new vehicle APR since April 2019.”

Interest rates are just getting back to a normal range.  The rates we’ve seen in recent years were unsustainably low.  Portraying today’s rates as excessively high is misleading.

“The last time interest rates were this high, consumers could at least rely on lower vehicle prices.”

One way to return to stability would be for central banks to lower interest rates again.  A better way is for car companies to lower their prices.

“Monetary policy continues to worsen the situation in the automobile industry, and has created a crisis that could explode in 2023.”

If we get an explosion of defaults on auto loans, I have some sympathy for unsophisticated buyers who didn’t understand the risks they were taking, but for the most part, reckless consumers and lenders deserve each other.

There are reasonable ways to use debt in your life, but buying a far more expensive vehicle than you need is not one of them.

Comments

  1. AnonymousDecember 20, 2022 at 9:00 AM

    100% agree. I can’t fathom why we are afraid of 3% to 5% interest rates which are still low. Normalizing of rates is good for the economy long term and if it helps people focus on making better financial decisions for themselves so much the better.

    ReplyDelete
    Replies
    1. Michael JamesDecember 20, 2022 at 9:13 AM

      Even though normalization of interest rates is good for most people in the long run, it's not good for someone trying to sell cars or houses today.

      Delete
  2. AnonymousDecember 25, 2022 at 8:50 PM

    Ten million people employed in US auto industry. https://www.autosinnovate.org/initiatives/the-industry

    ReplyDelete
    Replies
    1. Michael JamesDecember 26, 2022 at 9:02 AM

      Anonymous,

      I assume your implicit point is that the government needs to help the auto industry because it affects so many people. Letting the insane party of "selling" vehicles to people who can't afford them would only make things worse when the system getting further leveraged and finally collapses. It's better to bring the economy back to some version of normalcy now.

      Delete

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