Automobile Manufacturers Increase Discounts as Interest Rates Drive Customers Away

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When increasing borrowing prices make buyers anxious, automakers are under additional pressure to lower their vehicles.

According to data from Cox Automotive, the average interest rate on a new vehicle or truck loan is 8.95%, up from 5.66% a year ago, according to The Financial Times on Sunday (April 2).

According to Jonathan Smoke, chief economist at Cox Automotive, the recent banking crisis has limited lending availability and made lenders “acutely aware of the risk that they are potentially dealing with and essentially are trying to guarantee that they are getting a risk-adjusted return.”

Due to the same constraints, dealers are offering discounts, which averaged around $1,474 per vehicle in February, the highest amount in a year.

“The first domino to fall is the dealer mark-ups we’ve seen over the last two years,” Fitch Ratings analyst Stephen Brown explained. “We’re already seeing some of that go away.”

The revelation comes during an already difficult year for both new and used vehicle retailers, with Cazoo and Carvana experiencing recent difficulties.

According to the FT article, exorbitant fees have driven some riskier subprime borrowers out of the market. According to Cox Automotive statistics, borrowers account for only 5% of the market for new automobiles and trucks this year, down from 14% in 2019.