On September 18, the Federal Reserve (Fed) unexpectedly cut interest rates by a large margin, bringing relief to many people looking to purchase cars through loans. However, will this interest rate cut immediately lower car loan rates? Experts believe that consumers may have to wait for some time before seeing significant changes.
Jonathan Smoke, chief economist at Cox Automotive, a research firm in the US automotive market, stated that the Fed’s rate cut will not immediately alter the current car buying and selling market. Consumers may have to wait for several months at least to see tangible changes.
“The Fed doesn’t directly control the rates consumers see, and ultimately, car loan rates may be one of the slowest market reactions,” Smoke said. If further rate cuts are possible in the future, Smoke analyzed that the new car market may experience changes before the used car market.
Data shows that since 2022, higher rates have increased the average monthly cost of new car loans by over $100, a 12.5% increase. Relying solely on a single rate cut by the Fed is not enough to lower car borrowing costs significantly.
Experts analyzed that currently, there are more expensive high-end car models in car dealer inventories, coupled with rising costs of car insurance and maintenance, making borrowing costs still high in the short term.
Cox Automotive found that as the Fed continues to combat inflation by raising rates, car manufacturers have made a practical business decision: since wealthier Americans can easily purchase cars, nearly all car manufacturers have produced more high-end vehicles, reducing the number of budget cars in the market.
Although major car dealerships have started offering larger discounts to attract consumers, the inventory of budget cars is still insufficient.
Smoke suggested that patient consumers should observe carefully and purchasing a new car later may be the right choice.
Brian Finkelmeyer, Senior Director of Corporate Insights and Consulting at Cox Automotive, after comprehensively considering data such as sales revenue, sales growth rate, discount percentages, sales days, and owner loyalty of major car brands from the beginning of the year, found that Toyota, Honda, Subaru, and Chevrolet are among the most popular brands.
Finkelmeyer stated that as we enter the final quarter of 2024, these four major car brands are most likely to be the top four brands on the company’s best car brand list. He believed that the reasons include:
Toyota has introduced some eye-catching new models, including the all-new Land Cruiser, the new long-lasting pickup truck Tacoma, and the 100% hybrid Camry. Toyota’s sales days are still the fastest in the industry.
Honda’s inventory this year is healthier, assisting in driving its sales growth. Honda has strong owner loyalty and high brand consistency, leading to a stable customer base.
Subaru has the most recession-resistant group of car enthusiasts, ranking first in owner loyalty. This year, the brand has seen significant sales growth, fast inventory turnover, low discount spending, and strong dealer estimates. The new Forester has also brought more momentum to the brand.
Chevrolet’s Trax, Equinox, Traverse, and Colorado models have attracted many new players. This year, the brand has a fast inventory turnover. While their new line of electric vehicles is starting to make waves in the market, it is drawing attention.