The Federal Reserve’s latest rate increase adds another layer of pressure for auto dealers already navigating elevated borrowing costs and affordability challenges. John Murphy, Founder and Managing Partner of Murphy Automotive Partners, said on today’s CBT Live segment that while the 25-basis-point increase may not dramatically change the market overnight, it reinforces the affordability headwinds facing consumers and dealers.
According to Murphy, consumers have already dealt with higher auto loan rates for much of the past year, making the latest Fed increase less of a sudden shock and more another factor working against affordability. While higher rates can also raise dealers’ floor-plan costs, Murphy pointed to vehicle prices as the more significant issue for consumers. Even with longer loan terms, the principal portion of a payment remains a major affordability challenge. He said increased supply and more affordable vehicles will be necessary to meaningfully address that pressure.