When it comes to car loans, money is cheap -- historically cheap.
Yogesh Mathur discovered that when he was in the market for a minivan for his baby-on-the-way. To keep his monthly bill reasonable, the Wheeling, Illinois, software engineer figured he would have to come up with a large down payment. Instead, Mathur got money for free: a no-interest, 60-month loan from Toyota Motor Corp. (7203) to purchase a $27,683 Sienna minivan. Mathur figures the free financing is saving him $1,000 to $3,000.
“It’s great,” Mathur, 32, said in a telephone interview. “I didn’t have to empty out my pockets just before a new baby is coming.”
Banks, bolstered by loose monetary policy, are charging U.S. consumers the lowest interest rates on new-car loans since the Federal Reserve began surveying them in 1971. Attractive rates helped spur a 9.5 percent jump in light-vehicle sales last month and maintained the fastest pace since the U.S. government’s “cash for clunkers” program three years ago, according to analysts surveyed by Bloomberg.
“There’s no question that the quantitative easing and the pressure on interest rates has helped the industry,” said Paul Ballew, chief economist at Dun & Bradstreet in Short Hills, New Jersey. “It’s absolutely breathtaking to think about not just zero-for-60 programs, but just base interest rates. It’s insane.”
Buyers with lower credit scores are also benefiting from more-affordable loans. Sales to B-tier buyers, those with credit scores of 650 to 679, have risen 26 percent this year, compared with a 7 percent rise in sales to those with A-plus credit, or scores from 790 to 999, said Thomas King, senior director at researcher J.D. Power & Associates.
Availability and affordability of auto financing is improving faster than home mortgage rates are falling, said Diane Swonk, chief economist with Mesirow Financial in Chicago. That helps explain why auto sales are coming back faster than the housing market, she said.
U.S. light-vehicle sales probably rose 9.5 percent in September to 1.15 million, the average estimate of 10 analysts surveyed by Bloomberg. The seasonally adjusted annualized rate may accelerate to 14.5 million, the average estimate of 16 analysts, from 13.1 million a year earlier.
The industry selling pace was 14.5 million in August, the best since August 2009, when the U.S. government offered incentives for buyers to exchange older vehicles for new models.
Buyers such as Mathur may have helped Toyota lead the industry in boosting sales by 36 percent last month, the average estimate of eight analysts surveyed by Bloomberg. Sienna was one of seven models, including the Corolla compact car and RAV4 sport-utility vehicle, for which the Toyota City, Japan-based automaker offered zero percent financing in September.
Industrywide deliveries this year through August climbed 15 percent to 9.71 million, according to researcher Autodata Corp. in Woodcliff Lake, New Jersey. The industry is on pace to exceed 14 million sales this year, the best total since 2007.
Banks reported the most common rate for a 48-month new-car loan was 4.87 percent in May, the most recent reporting period. The rates have dropped from more than 7 percent before the Fed lowered its target interest rate to zero in December 2008 and undertook large-scale asset purchases to try to boost growth. The Fed last month committed to a third round of quantitative easing, with open-ended purchases of $40 billion of mortgage debt per month.
Honda, rebounding along with Toyota from last year’s supply shortages caused by the tsunami in Japan, probably boosted sales in September by 26 percent, the average of eight estimates.
GM may have increased deliveries by 2.8 percent, the average of 11 estimates. GM is offering no-interest loans on the 2012 Chevrolet Cruze, Cadillac SRX, Buick Enclave and several other models, according to Edmunds. GM rose 1.5 percent to $23.09 at the close in New York. The shares have climbed 14 percent this year. Ford gained 0.7 percent today to $9.93.
Ford, which is offering no-interest loans on 2012 F-150 pickups as well as Mustang and Focus car models, may have boosted sales by 2.3 percent, the average of 11 estimates. Chrysler deliveries may have risen 6.3 percent. The automaker controlled by Fiat SpA (F) is offering zero-percent financing on 2012 Chrysler 300 sedans, Dodge Durango sport-utility vehicles and Grand Caravan minivans, according to Edmunds.
Sales of Fiat’s 500 small car began gaining momentum in part because the Auburn Hills, Michigan-based automaker began offering zero-percent financing about a year ago, said Tim Kuniskis, head of the Fiat brand in North America.
“It’s a huge value to the customer and is something that a customer can really understand,” Kuniskis said in an interview last week at the Paris Motor Show.
Hyundai Motor Co. (005380) and Kia Motors Corp. (000270), both based in Seoul, may combine to sell 9.1 percent more vehicles in September than a year earlier, the average of six analysts’ estimates. Hyundai has an interest-free financing offer on the 2012 Santa Fe SUV, Sonata and Genesis sedans, among other models, Edmunds said.
Volkswagen AG (VOW), which is targeting more than 500,000 vehicle sales in the U.S. this year, may have increased combined deliveries of its Volkswagen and Audi brands by 30 percent in September, the average of four analysts’ estimates. Wolfsburg, Germany-based VW is offering no-interest loans on the Tiguan and Touareg SUVs, as well as the Passat, Jetta and Golf cars, Edmunds said.
Nissan’s deliveries may have slipped 2.1 percent, the average of eight estimates. Yokohama, Japan-based Nissan is offering free financing on its Altima sedan, as well as its Murano, Pathfinder and Armada SUVs, according to Edmunds.
More than one in 10 auto loans written in August featured a zero percent interest rate, the highest level of the year, according Edmunds. The average interest rate on auto loans fell to 4.1 percent in August, the lowest of the year.
“If you’re financing a vehicle, you’re talking about record-low rates, rates we’ve never seen before,” said Ballew, a former sales analyst for GM and economist for the Federal Reserve. “The fact that the Fed is being aggressive at least in the near term on the margin helps the industry.”
Improved credit conditions also are allowing consumers to opt for longer-term loans to keep monthly payments affordable. New-vehicle loans of 60 months or more accounted for 32 percent of retail sales this year through August, according to J.D. Power. That’s an all-time high and up from 26 percent in 2009, according to the Westlake Village, California-based researcher.
With car prices rising, more people are financing their purchases. This year through August, 59 percent of car buyers took out a loan, compared with 53 percent in 2007, according to J.D. Power. Leasing, which also becomes more affordable as the cost of money drops, grew to 21 percent of sales, up from 13 percent in 2009, J.D. Power said.
The average monthly loan payment on a car fell to $462 this year from $483 in 2007, as the average price of a car has risen to $32,384, from $30,880 five years ago, according to J.D. Power. The average lease payment has also fallen to $419 this year, from $479 in 2007. Payments are down because of declining interest rates and longer loan terms, J.D. Power said.
“We’re starting to see folks with lower credit scores come back and they have a higher tendency to take extended loan terms,” J.D. Power’s King said in a telephone interview. “The prices people are paying for vehicles are higher now, so longer- term loans are an important way to make them affordable.”
The following table shows estimates for car and light-truck sales in the U.S. Estimates for companies are a percentage change from September 2011. Forecasts for the seasonally adjusted annualized rate, or SAAR, are in millions of light vehicles.
September had 25 selling days, the same as the year-earlier period.
GM Ford Chrysler SAAR Rod Lache 1.0% 1.6% 4.4% 14.4 (Deutsche Bank) Peter Nesvold 3.7% 2.2% 6.1% 14.5 (Jefferies) Patrick Archambault 2.2% 4.2% 4.8% 14.6 (Goldman Sachs) Joseph Spak 4.0% 4.9% 8.0% 14.5 (RBC) Brian Johnson -1.5% -1.4% 5.5% 14.3 (Barclays) Chris Ceraso 5% 4% 6% 14.5 (Credit Suisse) Emmanuel Rosner 3.3% 2.0% 4.4% 14.4 (CLSA) Ryan Brinkman NA NA NA 14.4 (JPMorgan) Adam Jonas NA NA NA 15.0 (Morgan Stanley) John Sousanis 4.6% 4.3% 8.1% 14.6 (Ward’s) George Magliano NA NA NA 14.5 (IHS Automotive) Jeff Schuster NA NA NA 14.5 (LMC Automotive) Alan Baum NA NA NA 14.5 (Baum & Associates) Jessica Caldwell 1.9% 0.7% 8.4% 14.4 (Edmunds.com) Jesse Toprak 2.5% 1.3% 8.1% 14.6 (TrueCar.com) Alec Gutierrez 4.0% 1.7% 5.6% 14.3 (Kelley Blue Book) Average 2.8% 2.3% 6.3% 14.5
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