Auto Dealers Struggling with Prices
Higher interest rates and the implementation of tariffs on production parts and material are creating concerns among auto dealers for increasing prices of vehicles. Auto dealers have joined hands with consumers and are lobbying to keep prices as low as possible for the consumer, worrying existential fears for the future of the business of prices rise. While prices may have risen over the past few years, the deviation from the standard level of inflation remains low. One of the major concerns, rising interest rates, are concerning due to increased reliance on financing from the consumer perspective. Research suggests increasing payback terms for auto loans; 42 percent of auto loans made in 2016 carried a payback term of six years or more, compared to just 26 percent in 2009. Increasing duration of past auto loans could spur the creation of large opportunity cost for auto dealers. This fact along with an overall increase in auto loans, as the auto financing industry hit the $1.1 trillion mark for the first time, a 7.1 percent increase YOY.
Keith Knutsson of Integrale Advisors commented, “The steel tariffs are likely to have a profound impact on the automotive industry. Decreasing demand can carry all the way through to items such as product innovation, a factor nobody would the US like to fall behind in.”
Regarding Tariffs, costs being pushed to consumers remains the main concern. Toyota’s Jim Lentz announced earlier this week that “if vehicles increased about $200 across the industry because of the tariff, that is a $3.4 billion tax on the U.S. consumer,” demonstrating a congruent sentiment as the auto dealer industry.