SANTA MONICA, Calif. — The downgrading of the U.S. credit rating and the decline of the stock market might have some consumers feeling nervous about the impact of those issues on their ability to buy a new car. Will interest rates be rising? Will car loans be available? Will the price of cars go up?
According to Dr. Lacey Plache, Edmunds.com’s chief economist, “The turmoil is unlikely to have a negative effect on car buyers. All market factors suggest that credit will remain available, that interest rates will remain stable and that incentives may help keep car prices low in the immediate future.”
Here are explanations for these predictions:
Can I still get a car loan?
Yes. Dr. Plache predicts that car loans will continue to be available for credit-worthy buyers. Lenders are not currently lending as broadly to the sub-prime portion of the market as they did prior to the last recession, so they will not be facing as much risk by continuing their current lending practices. Furthermore, automakers have an interest in supporting the availability of credit because they know that readily available credit is essential to their ability to sell vehicles.
Will the interest rates on auto loans increase in the short term?
No. Many low-interest incentives are currently available, such as zero percent financing on many Chevrolet, Chrysler, Ford and Nissan models. Dr. Plache does not see car loan interest rates rising anytime soon because there is a “counterbalancing effect” that will come into play. “US debt is the world’s reserve collateral. More treasury bonds will now be required to secure loans, meaning that the demand for the bonds will increase. This, in turn, will keep downward pressure on U.S. debt interest,” she says. This will keep auto loan interest rates stable.
Will the price of cars rise?
Not likely. Automakers hurt by the earthquake in Japan are just beginning to restock inventories and are anxious to make up lost sales. At the same time, dealers are trying to clear 2011 models to make room for the next year’s cars. Dr. Plache predicts that this will create a competitive market, and that likely means incentives and lower transaction prices.
“While the upheavals in the economy are not likely to change shopping conditions, there are always fluctuations in the market that car buyers should be aware of,” warns Edmunds.com Senior Consumer Advice Editor Philip Reed. “Before heading to the car lot, it’s important to check current incentives and rebates, arrange financing and check the True Market Value® of both the car you want to buy and your trade-in. Using these car buying tools will keep you on course — whatever turns the economy takes.”
To learn more about the economy’s impact on car shoppers, please read “Car Shopping During the Debt Downgrade and Market Turmoil” athttp://www.edmunds.com/car-<wbr></wbr>news/car-shopping-during-debt-<wbr></wbr>downgrade.html . To learn more about the economy and the auto industry, please read “Car Sales Just Might Save the Economy” at http://www.autoobserver.com/<wbr></wbr>2011/08/car-sales-just-might-<wbr></wbr>save-the-economy.html .