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Rising Interest Rates Cause Growing SUV and Truck Sales to Stagnate in October

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GMC Terrain and Acadia Black Editions

Automakers are generating a lot of profit from luxury SUVs, but are seeing fewer sales overall

In the modern automotive environment, those automakers that offer an assortment of SUVs and crossovers are generally the ones that prosper. Indeed, SUV and truck offerings helped to boost the industry’s October sales.

However, those strong sales showings for SUVs are now being mitigated by rising interest rates. As a result, October sales were only slightly above the level they were during October of last year.

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U.S. car sales reached a record high in 2016, when a total of 17.55 million vehicles were sold nationwide. The following year, U.S. car sales fell by a total of 2 percent.

Domestic car sales are set to decline even more this year. Not only are interest rates rising in the currently healthy economy, but the demand for used models is surpassing the demand for new models in many vehicle segments.

used car buying guide

Motorists who are priced out of a new vehicle purchase are turning to used cars

Numerous customers are currently being priced out of the new car market, due to the rising cost of producing vehicles with the latest safety tech and infotainment features. Those motorists are now turning to the used car market, which is struggling to keep up with consumer demand.

Meanwhile, a study from the University of Michigan showed that the number of people saying it is currently a good time to buy a car fell for the month of October. During that month, only 59 percent of respondents said that it was an ideal time for purchasing a new car, compared to the 67 percent who felt that way a month prior in September.

“Interest rates are taking payments up along with our transaction pricing. So little bit of pressure there,” said Mark LaNeve, vice president of U.S. marketing, sales and service at Ford.

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While declining sales represent a worrisome trend, they aren’t the only indicator of an automaker’s health. Due to the higher transaction prices of trucks and SUVs, profitability is up for many auto manufacturers.

As interest rates are set to rise even more in the near future and automakers focus on SUV and truck production, these market trends show no sign of reversing any time soon.

News Source: Reuters