Will car buyers ever get a break? The answer seems to be yes, just not immediately. Going into the end of the year, loan rates are likely to stay elevated while deals become a little harder to come by. Overall, though, the news looks better for 2026.
Wasn’t there a rate cut yesterday? Yes, there was. And if you’re trying to buy a house, that’s great news. I’ll explain why neither used nor new car rates are going in the same direction. It’ll be a Morning Dump where I get to mention Quantitative Tightening, which is always fun.
The other side of cars being more expensive is, of course, tariffs and EV investments. Stellantis is taking a big hit from changing its plans, but that’s probably just a one-time thing. Volkswagen is in terrible shape with both and is uniquely susceptible to a lack of trade deals, as well as some fun new geopolitical concerns.
China and the United States now have a quasi-deal that’ll have to be renegotiated every year, but will take a lot of pressure off trade. Could 2026 be a calm year? That would be nice.
The Car Loan Fairy May Not Come Until 2026
The good news is that the Federal Reserve Board of Governors approved a Fed Funds Rate of 3.75%-4.00%. This was expected and, to some degree, ‘priced in’ as market watchers like to say, so don’t expect huge market moves today.
This caused 10-year U.S. Treasury bonds to move higher while, at the same time, mortgage rates are going down. As I mentioned above, auto rates are going up. If you bought a new car during the pandemic and got a 0% finance rate that matched a low Fed Funds Rate, you might wonder why the two are so disconnected.
As Cox Automotive Chief Economist Jonathan Smoke explains, there’s more going on than simply bond yields and how much it costs to borrow money:
New rates are moving higher mostly due to fewer special offers from the captive finance arms of the manufacturers. Fewer special, low-rate offers means an increase for prime-and-above borrowers who disproportionately benefit from the special offers.
Inventory is falling as carmakers cut back on EV production, retool, slow imports due to tariffs, and otherwise do whatever they can to not end up with a glut of cars on dealer lots. That lack of cars means there’s less incentive to offer low rates, causing averages to go up.
Ok, but what about used cars? As Smoke points out, the blow-up of lenders like Tricolor has spooked the market, but overall fears about the economy haven’t particularly dissuaded subprime borrowers, who keep financing cars at super high rates.
The good news is that analysts like Cox Automotive see some of this chilling out, eventually:
Average auto loan rates are likely to remain high through November. December will bring more year-end rate offers in the new market, which should help pull the average rate back down. The used market is not likely to see rates decline until loan performance improves, and this is the time of year when loan performance always degrades.
The seasonal pattern suggests that loan performance should begin improving by March, and 2026 could see improvement start sooner as consumers benefit from reduced tax withholdings leading to higher take-home pay in January. Then, starting in February, we should begin to see the impact of record-high tax refunds.
In addition, Fed Chair Jerome Powell said that the policy of Quantitative Tightening is going to end, so that’ll hopefully help take some of the pressure out of rates next year, according to Smoke.
Obviously, if you have a good-sized down payment and a high credit score, you’ll probably be fine.
Stellantis Finally Posts Good Numbers
After a long period of shrinkage, Stellantis posted positive numbers in its Q3 investor update. Specifically, both shipments and net revenues grew by 13%, including growth in shipments of 35% in North America.
How’s the company doing this? It points to a stronger position in North America, including the return of both SRT products and the Hemi V8, which bring with them higher margins.
Looking at the overall picture, it seems like things could be worse (unless you look at Maserati, which is cratering). The company expects about $1.2 billion in tariff hits for 2025. Not great, not terrible.
There is an interesting line in the report that’s worth looking at:
As we continue making important and necessary changes to our strategic and product plans, also in response to regulatory, geopolitical, macro-economic and other external and internal developments, we anticipate incurring charges in H2 2025, which, once finalized, we expect will largely be excluded from AOI.
Stellantis doesn’t go into details, but my guess is some mix of sending more production to the United States and slow-rolling many of its EV plans.
Volkswagen Lost $1.5 Billion Thanks In Part To Tariffs, Worries bout Chip Shortage
Here’s the full release from Volkswagen Group that details how far it has fallen so far this year. None of this is a surprise, as the slowing of EV sales in the United States, troubles in China, and tariffs all combine to cause trouble. This is to say nothing of Porsche, which is a perfect combination of all those issues.
Volkswagen forecasts it’ll make about as much as it made in 2024, with an equally mid margin. Here’s something interesting buried in the report, though:
The forecast is based on the assumption of adequate availability of semiconductors.
This is the issue between the Dutch government and the Chinese government, which has seen semiconductors yet again become an issue for carmakers. Bloomberg has more:
The spiraling standoff between the Netherlands and China over Nexperia, owned by China’s Wingtech Technology Co., comes after the Dutch government seized control of operations in the country. Beijing this month retaliated with an export ban from Nexperia’s facilities in the country, triggering a frantic search for alternatives.
“The solution should be on the political side because its not a technical shortfall or a capacity shortfall,” Antlitz said. “It’s really induced by political discussion, and this is where we hope that all the relevant parties sit together and find solutions.”
It’s always the Dutch Van Houtens that are the problem, amirite?
China Comes To Terms With The United States, Sort Of
The ongoing trade war between the United States and China, which was started because of, uh, fentanyl, looks like it’s about to cool. President Trump and Chinese President Xi Jinping both agreed to a bunch of measures that’ll calm things down. Maybe.
Specifically, the White House will lower tariffs by 10% while China will release rare earth minerals and buy American soybeans.
Per Nikkei Asia:
Xi told Trump that the superpowers “should be partners and friends” because that is what “reality demands.” The talks on the margins of APEC in South Korea, however, appeared to stop short of a fully fledged trade deal, with Trump acknowledging that discussions between the rival powers “will go on for a long time.”
“I put a 20% tariff on China because of the fentanyl coming in,” Trump told reporters aboard Air Force One as he flew out of Busan moments after meeting Xi, referring to a drug-abuse epidemic that has swept the U.S. “Based on his statements today, I reduced it by 10%.”
As the report points out, the effective tariff rate against China is still about 40% even after the drop. So what does this really change? Again. from the Nikkei Asia report:
Some observers were underwhelmed by the initial outcome. “Frankly, the U.S. does not seem to have gotten much,” said Alicia Garcia-Herrero, Asia-Pacific chief economist at Natixis.
Markets, which had rallied in recent days on hopes for a positive result, were rocky in the wake of the meeting. China’s benchmark CSI 300 Index ended the day down 0.8%. U.S. stock futures swung between gains and losses.
It doesn’t seem like a lot, but it’s not nothing.
What I’m Listening To While Writing TMD
I keep being in the same city as Wolf Alice and not being able to get away to see a show. I gotta fix this, just to see them perform “Just Two Girls.”
The Big Question
How much do loan rates impact your car buying purchases, new or used?
Top graphic images: Audi; DepositPhotos.com
Jerome Powell is the worst Fed Chair in recent history, and that is saying a lot. The Fed has not met the 2.0 percent inflation target, even for a single month, since 2021, and has been running operating losses, for the first time since 1915, since 2022. His dove with Newcastle disease “little risk of overdoing it” behavior has caused massive price instability and the “everything” bubble overinflating every asset market. The only reason he isn’t seen for a total economic moron is that he his seen as a foil to Trump (who wants even lower rates when rates should be stable or increasing since the inflation target has not been met and inflation is rising). Mortgage rates are barely down, and will track back up as the 10-year treasury rate trends back up as the markets anticipate future continued inflation and price instability.
On my recent new car purchase I took the OEM loan because the offer was a very low rate – lower than my bank was paying me, and because my insurance company does not offer a new car replacement policy, only gap insurance, so I wanted to have a bigger policy payout if someone crashes into me in the first couple of years of ownership.
Same, with the exception of, my insurance company did offer me a new car replacement policy, for an extra buck forty a year. 1.90 percent on a brand new CX-50 hybrid.
Loan rates don’t impact my car buying decisions at all. I have no interest in buying another new car, and with vanishingly rare exceptions I pay cash for used ones.
But ultimately, not too worried about auto loan interest rates. My first car loan was at 10.5% back in 1988 (pretty good used car rate at the time), and that $4500 for an ’85 2dr Jetta was a HELL of a lot more money to me then than $50K @ 4-5% would be today. I managed. We just got spoiled by unrealistically low interest rates for a decade or so.
I do feel bad for the kids who have become adults in that period though. They think 0-3% interest rates are normal. They are not normal.
$4,500 in 1988 is $12,200.33 today, not a hell of a lot more than $50K. And it looks like 3 year old Jetta’s are going for $20,000. Bump rates to 10% and they would be going for a lot less.
One reason the Fed probably feels pressure to drop rates is because current rates were causing the housing market to collapse for old entitled boomers.
I made about $5K in 1988 (still living at home while in college). I’ll make something over $200K this year. It’s not about the price of the car or the interest rate per se – it’s about the price of the car and the interest rate relative to my income and thus ability to pay it. It was ROUGH making that payment back then (about half my monthly take-home), but I only had to resort to the First Bank of the Old Man occasionally to make up the slack. I wouldn’t even notice the payments on a $50K car today even on a 3yr or 4yr note.
Ultimately too low interest rates are one of many reasons why the housing market (and car market too) is the mess that it is currently.
I only buy if the rates somehow have a 41 in the number, sooooo……
Just two girls? What happened to the cup?
Oh…listening…my bad.
The Autopian should identify and fly-in “VW Assembly Guy” to an official meetup/event sometime as a celebrity guest.
This is one of the reasons why I do everything in my power to hide from the HR woman who takes pictures of us at company stuff. I know they’re going to post me into some sort of LinkedIn PR post, and I don’t want to turn into the next Hide the Pain Harold.
I like my 1000$ beaters too much to think about buying new. I hate payments.
The solution to the reliability problem posed by $1000 beaters is more $1000 beaters
The correct number of cars to own is at least one more than you will ever need. 🙂
Though I have no interest at all in beaters. There is a happy medium between beater and overpriced new nonsense. $15-20K buys really nice, minty fresh examples of interesting cars.
My main problem with beaters is just driving them; at the end of the day the whole point of nice cars is that you don’t have to be in a shitbox.
I used to tell friends who buy ‘winter beaters’ that their nice car sitting in the garage is still depreciating every year, while they spend a third of the year being miserable putting up with driving around in a POS (including, but not limited to, being left stranded in one, on the side of a cold, snowy road).
No one should drive beaters if they can afford better.
Definitely. My “winter beaters” were a succession of very nice SUVs, once I needed one to buy a boat. No reason to suffer, even if I didn’t want to subject my precious BMW wagon to snow, or freeze to death in my Spitfire.
It’s mildly amusing to me that my current “beater” is a 2014 Mercedes station wagon with <100K on it. It’s a Florida car that has seen a bit too much sun to be “nice”, but on the other hand I don’t feel at all bad about using it like a rented mule and leaving it parked at airports for weeks at a time.
Sounds a lot like my daily 2015 (not brown) manual diesel wagon, which, despite its current 190k miles is in perfect shape, it needs nothing and everything works as it should, while returning 45mpg no matter how fast I drive it.
I can’t call a nice car that I can reliably drive across the country a ‘beater’, although I also leave it in the O’Hare parking lot on a weekly basis.
It’s all relative. My two BMWs are *nice* in a way that the Mercedes just isn’t, and I don’t care enough about it to make it nice. Which would mean paintwork and a lot of plastic bits. For example I replaced the sidemarkers, 3rd brake light lens, and antenna on my BMW convertible last year due to sun damage.
But a month ago I loaded up the Big Benz and drove it from FL to ME and back in the course of two weeks without a thought.
Hmm. How much would it cost to “unbeat” the beater?
Eh, doesn’t matter. Once it’s been beaten, ya just buy another beater.
I respect your ability to do that. I’d go off the financial deep end trying to save it.
I get bored with cars quickly anyways, so buying a beater is a two fold solution for me. I can buy 2-3 cars a year for much less than what a car payment would be. If I like a specific car I will consider doing repairs that are cheap enough to warrant keeping a car around long enough. Then I scrap it and get a few hundred back and start over.
That is a great solution for you. I applaud it.
I’ve had my last truck for 12 years now and it’s 14 years old. 🙂
“Welcome to Whose Late-Stage Capitalism Is It Anyway?, the show where everything’s made up and the talking points don’t matter!”
Late Stage Capitalism used to sound like commie edgelord talk to me, but with Nvidia above $5 Trillion based on vibes it is sounding more accurate. It is interesting to see the kind of subhuman piece of shit, like Altman, that would sneer at a Challenger from a Tesla, burn down the earth and destroy any remaining fresh water for chatbots. It is truly a broken economy with meaningless money.
Ironically mortgage rates went up today.
Thanks to Powell’s comments yesterday.
Lower rates were baked into the mortgage market already.
They always are.
Me? None at all.
.
I’m usually a cash-car kind of guy, but there was one exception. When I went to get a cashier’s check for my Volt after selling a couple of my classics, the guy at the credit union started up the typical small talk since we knew each other and he was curious as to what car I was buying “this time”. When i said 4-year-old Chevy Volt, he mentioned that they could finance it instead at 2.5% if I was interested. That did get my attention and he sold me on getting a four-year loan, especially since there wasn’t any fees or closing costs attached to it.
Later on it seemed like a particularly good idea to finance once I discovered that the loan payment was less than what I was saving per month driving on electricity. I still paid it off in two years as I just don’t really like payments, but going forward if I can get an extremely low interest rate on a vehicle I want that’s in the five-figure range, I’ll at least consider it.
That said, based on the ever increasing costs of new cars, the only way I see myself financing a vehicle in the near future is perhaps stretching out a classic-car loan for nice ’59 Cadillac if both the prices on those and interest rates in general keep dropping.
It’s simple. Will I make more investing that cash than I’d lose financing the car? Yes, finance. No, cash.
What would you invest in that doesn’t run the risk in depreciating these days?
Stocks, bonds, mutual funds, the standard diversification. Long term it has only gone up and exponentially.
Almost all investments have risk of depreciating.
To satisfy your question and maintain my point – if one could get a car loan at 3% and a CD at > 3% then I would finance and put the cash in CD. Reasonably no risk and I spend less total $.
I am expecting a major crash ala great recession any day now.
Are you saying you don’t trust this great leadership?
Went from bankrupt to billionaire in less than a year! What a resume!
LOL! Yep. You’re right. I don’t trust him.
I am completely aware of that angle, and do think it’s a solid choice.
That said, at some point in my life,
[deep breath],
somewhere in the process of learning about the tax-free advantages of the HDHP health plan’s HSA, the myriad ways of investing in my 401K, how much to put into my company’s stock, how much risk is acceptable in an insurance deductible, how much term life I should be carrying, how much term life I should have on my wife as replacement income, how the cash HSA account stacks up to the deductible and how much of a percentage I should be forwarding in to the investment HSA account, how aggressive I want the investment profile to be in the HSA, how to negotiate through my insurance guy to get the best rate on bundled insurance including how our rental properties are affected, how much classic car insurance to carry vs. how much liability to carry along with which vehicles should be valued as what, setting up a custodial Roth-IRA for my daughter, where to direct the investments within the 529 set up for her college, the ins and outs of the state-sponsored retirement-plan my wife has and how that may affect her retirement age, where the numbers may land with my wife and myself regarding social security when that time comes, the pros and cons of refinancing our different properties taking into account closing costs vs. points paid, vs adjustable rates vs. fixed, what to do with the few individual stocks floating around in my old Schwab account, and probably at least two or three more financial-based things I’m forgetting right now,
[big exhale]
I just got tired of trying to be an expert on all of it and sometimes prefer the simplicity of one less bill to pay vs. one more financial ball in the air to keep track of.
I feel this in my eyelids.
THIS! In theory, i would have been better slightly better off not paying off my two houses, student loans and possibly having low interest loans on just one or two cars. But I have plenty of net worth, and I like not having any payments. I really just don’t have any need of arbitraging every possible cent. And it’s nice having a debt-to-income ratio that is basically infinity to one.
I wonder how it feels to be the guy in that photo of a VW assembly line that gets used in basically every article on this site about VW manufacturing. This is not a slam on the Autopian or the staff, I just think it’s really funny to imagine that guy knowing about it and having his friends message and tease him every time it gets used.
He’s in the Carlos club and doesn’t even know it! I’m waiting for him to guest on SNL.
If I need a new car and can’t wait, then the interest rate unfortunately doesn’t matter. If I’m planning to buy but not due to an immediate need, then a low interest rate might entice me to adjust my timeline. I wish I could be one of the “I only ever buy cars with cash” guys (or do I?), but there are times where I determine my wife or I need or want a new car, not a beater, and I don’t have $40k laying around. Ever. Financing is fine, there are ways to be smart about it.
Same here. When I got my 2014 Sportwagen in 2020 it was $13,500 and I didn’t even have that much money to my name at the time. I put about 10% down and got 1.99% for five years. My payment was all of $223 a month. Like you said, nothing wrong with financing as long as you’re smart and realistic about it. I got a low mileage used car with the Dieselgate powertrain warranty, and I was easily able to afford the payments, even on the meager salary I had at the time.
“How much do loan rates impact your car buying purchases, new or used?”
Never/not at all, because I never take out car loans.
I’ve owned about a dozen+ used cars, and only leased one new one through my business, so I was able to count 100% of the lease payment as an expense (I also had other ‘personal use’ cars at the time). I’ve always paid for the many used cars I’ve purchase in full/in cash (or cash equivalent), though the most I ever paid IIRC was just $16,650., which was for a one-year-old A4 2000 VW Golf TDI GLS. The least I paid was about $2,250. for a ’95 NA Miata w/hardtop and just 85Kmiles on it (this was at the start of the pandemic, when prices were still normal).