Strong New-Car Demand Collides With Rising Interest Rates

Auto executives for months have expressed confidence there will be eager buyers for all the vehicles they can build. A worsening economic picture is putting that theory to the test.

The US auto industry is expected to report flat new-car sales for the third-quarter, despite earlier predictions that this year’s depressed selling pace would accelerate in the second half, analysts predict. Most auto makers are scheduled to report third-quarter sales results Monday.

Tight supplies continue to be the big problem, car executives and dealers say, as a shortage of computer chips and other supply-chain snags continue to hamper vehicle output and curb sales.

Still, there are signs the backlog of demand built up over the last 18 months could deteriorate as consumers feel the pinch of higher interest rates, analysts say.

“It seems likely that much of the pent-up demand from limited supply is quickly disappearing as high interest rates eat away at vehicle buyers’ willingness and ability to purchase,” said Charlie Chesbrough, senior economist with research firm Cox Automotive.

Supply chain woes, parts shortages and inflation are making it costlier for automakers like Ford to manufacture vehicles. Is this trend here to stay, and does this mean that cars are going to be more expensive? WSJ’s George Downs explains. Illustration: George Downs

The firm last week lowered its 2022 US sales forecast, to 13.7 million new vehicles, which would be down 9% from last year. In the five years leading up to the pandemic-plagued year of 2020, the industry sold more than 17 million vehicles annually.

So far, though, car companies and dealers say that most new vehicles that get shipped from the factory are quickly snapped up by buyers.

“There is still really strong consumer demand, and huge replacement demand,” said Duncan Aldred, head of General Motors co.

GM -3.52%

‘s Buick and GMC brands, during an interview at the Detroit auto show last month. “I think that will probably overcome a lot of the economic headwinds.”

Car companies and dealers say that most new vehicles that get shipped from the factory are quickly snapped up by buyers.


Photo:

Brandon Bell/Getty Images

Auto makers and dealers continue to pull in strong profits, as the tight supplies keep prices at or near record highs. The average price paid by US car buyers in the third quarter hit $45,971, up 10% from a year earlier and the most for any quarter on record, according to research firm JD Power.

But there are signs that rising interest rates are starting to strain car buyers, which could pressure pricing. The average interest rate paid on a new vehicle purchase hit 5.7% in September, up from around 4% a year earlier, JD Power said.

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Are you planning to buy a car this year, or are higher interest rates making you rethink your plan? Join the conversation below.

This past week, CarMax Inc.

KMX 1.32%

shares sank after the used-car retailer flagged that high prices, paired with high broader inflation and rising interest rates, have slowed demand. The company’s profit fell 50% in its most recent quarter and its sales leveled off at 2% growth, both worse than analysts expected.

“This points to some deterioration in per unit pricing and profitability in the coming quarters, as rising interest rates and economic conditions affect demand,” said Thomas King, president of the data and analytics division at JD Power.

Write to Mike Colias at mike.colias@wsj.com

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