Financial Inclusion

Car Sales Slip On Increasing Interest Rates

February auto sales dipped as tightening credit and increased interest rates have effectively driven up monthly payments and slowed up action in the car markets.

The ramp down follows several years of booming sales, wherein car prices have actually been on a long incline. That increase, however, was balanced out by ready access to credit and a powerful package of incentives sent out with the next generation of cars to get users to actually by them.

But these days, those incentives are scaling back — and monthly payments are getting higher.

“I can’t match previous payments,” Ali Reda, a salesman at Les Stanford Chevrolet in Dearborn, Mich., told  The Wall Street Journal. “Buying power is more limited.”

Tightening credit standards, notes Brian Allan of the Southern California dealership group Galpin Motors, are also doing their share to slow sales.

“I would call it a little bit more responsible, but it’s subtle,” Mr. Allan said. The problem of a higher monthly payment can be “cured with a little bit more down payment,” he said “Your payment may be up $50, but you’ll save in fuel. We sell the whole expense structure.”

Mr. Allan said he has also seen an increase in leasing.

General Motors Co.’s chief economist, Mustafa Mohatarem, said the broader economy could give the industry the boost it is looking for as Americans start “feeling the tax cut more.”

According to J.D. Power estimates, incentive spending was down year on year in February — the most popular models out of Detroit (SUVs and pick-ups) have seen discounts fall by an average of  $450 per unit over the period.

“At a certain point, auto makers have to pull back,” Thomas King, a J.D. Power analyst, said. He said the decline in incentive spending was the first in more than four years.

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