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Auto industry may not take to rate hike

Posted on Monday, December 14, 2015 at 9:59:45 AM

With the exception of banks, automobiles are perhaps the business most dependent upon rate changes. For the last seven years, the auto industry has taken advantage of low rates to right itself - in definitive fashion - after taking a dramatic fall during the financial crisis. According to CNBC, light vehicle sales jumped from 9 million in early 2009 to more than 18 million in November 2015.

The auto industry's new lease on life is largely due to the efforts of the Federal Reserve. In 2008, the Fed dropped its target funds rate to practically zero, allowing sales to take flight. Citing data from Bankrate.com, CNBC stated that auto financing through five-year new car loans is currently at a 3.32 percent rate nationwide. Pre-crisis, those rates were closer to 8 percent.

Given the impact rates have had on the industry, the Fed has expressed some concern over what a hike will do to auto sales. A white paper from the New York Fed found that an increased interest rate would affect both auto sales and production. They found that a 1 percentage point hike would result in a 12 percent annualized dip in production and a 3.25 percent drop in sales.

For the average consumer, however, even a 1 percentage point increase would only mean around $12 more a month on their loan.