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Fed Rate Hikes Likely to Hurt Car Sales in 2018

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Jan. 3, 2018—Expectations for more governmental interest-rate hikes are leading to the virtually unanimous view that car sales will drop again in 2018, bloomberg.com recently noted.

The Federal Reserve forecasts three rate hikes in 2018, prompting skepticism about the potential for car sales.

“Consumers could face slightly higher costs for all their borrowing: credit-card balances, student loans, financing a house or a car,” noted Charlie Chesbrough, senior economist at Cox Automotive. “At the same time, higher rates drive up the cost to provide low-rate financing, which eats into profit margins and hurts the carmakers, as well.”

For consumers, rate hikes of course make it more expensive to take on new car leases or loans.

And, as noted by Cox’s chief economist, Jonathan Smoke, when rates increase, many consumers don’t have an option to pay more. He believes the higher rates have already led the automotive market to shift toward used-vehicle purchases.

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