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"Fed worries auto industry may feel most heat from rate hike"

"Fed worries auto industry may feel most heat from rate hike", Web Link

"One of the industries that will be most keyed in on what the Fed does with interest rates is the automobile sector, which has used seven years of cheap rates to rebound after nearly capsizing during the financial crisis."

"Outside of banks, autos are arguably the most rate-dependent business. Light vehicle sales have about doubled since the crisis lows, from just more than 9 million in February 2009 to just more than 18 million in November 2015. That's still well below the 21.7 million peak in October 2001, but still a strong rebound."

"Though on a slightly upward trajectory, a five-year used car loan can still be had for a national average of 2.81 percent, while new-car financing comes with a 3.32 percent rate, according to Bankrate.com. Before the crisis, the same loans were going in the 8 percent range."

"In all, a 100 basis point, or 1 percentage point, hike in the funds rate would translate to a 12 percent annualized hit to production and a 3.25 percent dent in sales, according to the Fed's models."

The Fed meets again next week.

more from the piece: "The salient point in the equation is how long it takes the Fed to get to 1 percent."

"The current rate is targeted at zero to 0.25 percent and actually sits at 0.14 percent. At its two-day meeting next week, the Federal Open Market Committee is expected to hike the rate a quarter point, to an upper limit of 0.5 percent. Traders currently are pricing in an 85 percent chance of a hike, according to futures data from the CME."


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