Tag Archive | "Federal Reserve"

Edmunds: Stage Set for Market Contraction

SANTA MONICA, Calif. — A week after saying a strong economy is likely masking market factors bubbling just below the service that could start to slow down sales, Edmunds reported on Tuesday that auto loan interest rates in June likely reached their highest level since 2009.

The annual percentage rate on new financed vehicle averaged 5.82% in June, up from 4.96% in June 2017 and 4.10 in June 2013. The firm’s analysts point to the most recent rate hike by the Federal Reserve as a contributing factor, noting that June marks a 17% total increase since January 2018, when APRs averaged just below 5%.

“Auto loan interest rates have been steadily on the rise this year and we don’t see them going down anytime soon, which could mean trouble for automaker sales through the end of the year,” said Jeremy Acevedo, Edmunds’ manager of industry analysis. “While some shoppers may take this as a cue to purchase new vehicles now while rates are still somewhat favorable, we’re getting dangerously close to a tipping point. Shoppers with average or subprime credit may end up putting off purchases as financing vehicles get increasingly more expensive.”

The firm noted that zero percent interest loans reached their lowest level in nine years in June, accounting for just 5.6% of total finance deals, compared to 9.47% in June 2017 and 10.55% in June 2013.

Edmunds revealed another problem in its midyear automotive trend report, which was released last week. It noted that the number of buyers who owe more than their vehicle is worth remains high, with 14.1% of buyers owing more than their car was worth. That’s down from 14.2% in 2017 and 14.6% in 2015 — the latter being a 14-year high.

“June typically boasts a substantial amount of zero percent financing offers, so this is a big red flag,” added Acevedo. “This might be a sign that access to cheap and easy credit — a post-recession hallmark that we’ve all grown so accustomed to — could be officially over. But there’s hope yet — the true indicator will be whether zero percent deals materialize through the rest of the summer selling season, which automakers typically rely on to clear outgoing model-year inventory.”

Edmunds put June sales at 1.52 million new cars and trucks and the month’s seasonally adjusted annual rate at 17.1 million, reflecting a 4.1% decline in sales from May but a 3.4% increase from June 2017. Through May, 2018 sales were up 1.1% compared to the same period in 2017. However, the firm noted that the month-to-month fluctuations are enough to give the industry pause.

As for retail sales, Edmunds put June’s retail SAAR at 13.9 million units, with fleet transactions accounting for 18.4% of total sales. Additionally, 3.2 million used vehicles were expected to be sold in June, for a SAAR of 39.2 million. That down from 3.3 million used sales in May, which had a SAAR of 39.3 million.

The firm also noted that millennial new-vehicle purchases hit a record high through May, with 21% of millennial car purchase being new.

“The strength of the economy is creating a very thick force field for automakers now, but once that starts to weaken, there are a lot of market factors bubbling just below the surface that could really start to slow down sales,” said Jeremy Acevedo, manager of industry analysis at Edmunds. “Even though millennials are finally starting to buy new vehicles, the U.S. market is virtually saturated. Add to that record-high vehicle prices, rising interest rates and historically high numbers of people who owe more than their cars are worth, and the stage is set for a market contraction.”

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Auto Loan Interest Rates Soar to Eight-Year High

SANTA MONICA, Calif. — Interest rates on new-vehicle loans were expected to soar to their highest point in eight years in February, Edmunds said last week. The annual percentage rate (APR) on new financed vehicles averaged 5.2% in February. That’s up from 4.9% in 2017 and 4.4% five years ago.

Edmunds experts point to an expected decrease in the number of loans in the 2% to 3% APR bracket and an expected increase in loans in the 4% to 7% range as the driving force behind this rise in the average.

Because this shift is happening in the mid-range of APRs, it means car buyers who qualify can still find deals, and the market isn’t facing a flood of subprime buyers. The percentage of loans with interest rates between zero percent and 2% is expected to remain steady at 22% in February, compared to 21% in February 2017. On the opposite end, the number of loans with interest rates above 7% is also expected to remain steady at 19% in February, compared to 18% in February 2017.

“We’re starting to see a trickle-down effect from the rate increases happening at the federal level,” said Jessica Caldwell, Edmunds executive director of industry analysis. “The Fed rate hikes directly affect unsubsidized loan rates offered by third-party lending institutions such as credit unions and banks, and, as a result, we’re seeing loans that were formerly between 2% and 3% being pushed up into higher APR brackets. Additionally, dealerships can match these independent loan rates brought in by shoppers.”

Edmunds analysts say that higher interest rates and near record-high lease returns could also be a contributing factor toward lease penetration levels hitting an all-time high of 33.5% in February.

“Car shoppers tend to have tunnel vision when it comes to their monthly payments,” said Caldwell. “As average transaction prices and interest rates rise, we’re likely going to see more consumers explore the option of leasing. In some cases, this is a result of consumers simply seeking a way to cut down monthly payments, but for many others, this may be the only option available when they discover that they can no longer afford the costs of a new vehicle.”

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AFIP Issues Guidance on Reg. Z and M Dollar Thresholds for 2016

COLLEYVILLE — The Association of Finance and Insurance Professionals issued guidance this week on the Federal Reserve Board and the Consumer Financial Protection Bureau’s Nov. 25 announcement that 2016 dollar thresholds for Regulation Z (Truth in Lending) and Regulation M (Consumer Leasing Act) exemptions will remain unchanged in 2016.

Protections under the TILA and CLA will apply to consumer credit transactions and consumer leases of $54,600 or less in 2016, according to the agencies, the same thresholds that applied in 2015, reports F&I and Showroom.

“The $54,600 threshold will remain the same for 2016, as well the accepted practice for processing transactions in excess of that amount.”

The $54,600 maximum amount to qualify for installment sale and consumer lease protection under TILA and CLA, respectively, is not based on the selling price of the vehicle, but on the “amount financed” for a credit sale and the “total contractual obligation” for a lease, Robertson added. The total contractual obligation includes non-refundable amounts a lessee is contractually obligated to pay under the lease, but excludes the residual value, purchase option price and amounts such as taxes, license and registration fees collected by the lessor, but paid to third parties.

“However, most dealers treat all consumer transactions as if they fall under TILA and CLA, regardless of the dollar amount involved,” Robertson noted. “Under the two regulations, a consumer transaction is one in which the vehicle is used ‘primarily’ for household, family or personal use. Consumer transactions exceeding the $54,500 threshold may be recorded on a TILA compliant installment sale agreement or a Consumer Leasing Act compliant lease agreement.”

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Yellen: Small Businesses are Driving Job Growth

Via Yahoo News:

WASHINGTON — Federal Reserve Chair Janet Yellen is spotlighting the fact that U.S. small businesses have accounted for more than half the job gains during the nearly 5-year-old economic recovery.

The economy has regained 8.6 million jobs since early 2010, leaving it about 100,000 jobs short of the 138.4 million that existed in January 2008 near the start of the recession. More than half those jobs came from companies with fewer than 250 employees, Yellen tells small business owners in a speech at the U.S. Chamber of Commerce.

Yellen says the Fed has tried to foster the conditions for job creation by keeping interest rates near historic lows, but that “overwhelmingly, it is businesses that create jobs.”

By contrast, governments have shed 2.6 percent of their workers since early 2010.

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Federal Reserve Inspector General to Probe Spiralling Building Renovation Costs at CFPB

Via The Washington Examiner

Federal Reserve investigators want to know why renovation costs for the Consumer Financial Protection Bureau’s headquarters building have soared to more than three times the original estimate, the Washington Examiner learned. “We have received a request … to conduct a review of the CFPB’s renovation project. We have agreed to conduct such a review,” a spokesman for the Federal Reserve inspector general said.

The request came from Rep. Patrick McHenry, chairman of the House Financial Services Committee’s subcommittee on oversight and investigations. The North Carolina Republican’s request followed a stormy Jan. 28 oversight hearing with CFPB Director Richard Cordray.

The Comptroller of the Currency, the prior occupant of the building at 1700 G St. NW, had previously estimated renovation costs for the building at $55 million. But last July, the CFPB announced that the renovation cost estimate had nearly doubled to $95 million. Then, at the Jan. 28 hearing, Cordray stunned lawmakers with an admission that the renovation costs had ballooned further, to $145 million.

Cordray declined to provide an explanation for the spiraling costs. The CFPB has also refused to provide documents on the renovation requested last year by the Examiner in a Freedom of Information Act request.

During the Jan. 28 hearing, Rep. Jeb Hensarling challenged Cordray, “Explain to me, Mr. Director, why I should be, why I shouldn’t be outraged, and why the American people shouldn’t be outraged.”

A Texas Republican, Hensarling is chairman of the financial services committee. He compared the building, which was built in the 1970’s, to Trump World Tower in New York, the Bellagio casino in Las Vegas and the Burj Khalifa in Dubai — the tallest man-made structure in the world.

The Examiner reported in July that CFPB hired Burj Khalifa’s architectural firm, Skidmore, Owens and Merrill, to design the agency headquarters’ renovation. The elite architectural firm is based in Chicago, President Obama’s hometown.

Cordray bristled at the suggestion that the rising renovation costs were an inappropriate expenditure. “The notion that we would try to build some palace that we don’t even own or control doesn’t make much sense to me,” he said.

Technically, the General Services Administration, the federal government’s housekeeping agency, owns the building, not the CFPB. The controversial consumer agency was established by the Dodd-Frank Act in 2010.

McHenry said the $145 million in renovation costs almost equals the GSA’s assessed value for the building of $154 million. In his request for the review, McHenry told inspector general Mark Bialek that he “should evaluate the budgeting process for the renovations, determine if the renovation expenses were subject to a competitive bidding process and conclude whether these dramatic increases are justified.”

Cordray has said the building is deteriorating, with inadequate electrical, phone and elevators. However, a Washington Business Journal article reported Jan. 30 that the upgrades are more ambitious, including a rooftop play yard to serve the basement child care center, a “green” roof, interior renovations and a new lobby redesign, as well as new landscaping to create a “public plaza.”

By placing CFPB under the Federal Reserve, Congress exempted the bureau from congressional oversight of its budget. But the Federal Reserve IG can investigate CFPB.

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Auto, Student Loans Lift Borrowing to Record Levels in February

Washington — The Federal Reserve reported that U.S. consumer borrowing rose $18.2 billion in February to a record $2.8 trillion. Nearly all of the gains were in the category that covers student and auto loans, which grew from $11.1 billion in January to $17.6 billion in February.

The Fed’s report doesn’t separate auto from student loans, but according to data compiled by the Federal Reserve Bank of New York, student loan debt has been the biggest driver of borrowing since the recession ended in June 2009.

The report also showed that consumers continue to be cautious with credit card debt, which remains 17.2 percent below the peak set in June 2008. From January to February, the category increased by just $533 million after a $1.7 billion gain in January.

The Federal Reserve’s borrowing report covers auto loans, student loans and credit cards. It excludes mortgages, home equity loans and other loans tied to real estate.

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