July 3, 2022

r43dscartex

automotive

Pent-up vehicle demand could offset loss of shoppers as interest rates rise

Enough pent-up demand for vehicles exists to offset any potential customers whom dealerships would lose with rising interest rates, some industry experts say.

“There is a terrific amount of demand still in the system,” Ally CFO Jennifer LaClair said on an earnings call last month.

The lender estimated 4 million to 5 million potential buyers were stuck on the sidelines because “they cannot find a vehicle to purchase.”

Ally dealer financial services President Doug Timmerman told Automotive News on April 15 the “huge” demand was more than enough to counterbalance the hypothetical 10 percent of buyers leaving the market. For this reason, Ally was “very bullish,” he said.

Timmerman’s assessment came about three weeks before the Federal Reserve on May 4 increased the federal funds rate 0.5 percentage point to between 0.75 percent and 1 percent. The Fed’s rate increases and decreases can trickle down to influence consumer interest rates.

However, Ally had anticipated Fed rate increases this year. In April, the lender told investors its performance estimates in 2022 and beyond assume a federal funds rate reaching between 2.5 and 3 percent.

Timmerman said last month that conversations with dealers demonstrated confidence in consumer demand, even in an environment of rising interest rates.

“It’s a different time,” he said.

Interest rate increases would affect demand, he said. But not enough to matter.

“Pent-up demand is so large that there’s going to be a consumer interested in every vehicle that will be available,” Timmerman said.