A more valuable dollar causes more immediate concern for the auto industry than a 0.25 per cent key interest rate hike, said Brian Murphy, VP Research and Editorial for Canadian Black Book. The rate increase — the first in seven years — was announced Wed. July 12.
While many new vehicle shoppers may assume otherwise, the cost of higher interest rates will probably not get passed on to them, according to Murphy.
“For the most part, manufacturer new vehicle incentive budgets will likely absorb the rate hike for consumers so that they can continue to advertise 0 per cent, or 0.9 per cent or 1.9 per cent for new cars,” he said. “To keep things in perspective, on a $40,000 car loan, a hike of 0.25 per cent is only an extra $100 per year of interest.”
It’s a different story If rates continue to climb. If that happens, higher monthly payments could result.
The bigger impact of a rate increase, said Murphy, is its immediate effect on the strength of the Canadian dollar — and what that will mean for both the new and used vehicle market in Canada.
“The dollar has increased $0.06 since May, which is a significant climb,” said Murphy. “This could lead to a cooling of new vehicle sales and is expected to cause Canadian used vehicle prices to fall over time.”
A lower dollar drives export demand and inflates used car prices domestically, he said. This results in better deals for new car buyers and drives sales.
But, at some point soon, a rising Canadian dollar, and falling U.S. vehicle prices may slow down such activity. Canadian Black Book expects that a $0.85 dollar is around the tipping point for U.S. exports to slow.
