Friday, May 8, 2009

New Car Sales: The Obvious Impediment

Now that the Federal Government has wrested control of a substantial portion of the US auto industry, we feel entitled to offer advice to Uncle Sam concerning his management of this newest addition to the Portfolio. After all, we do have the honor of filling out a check, on an annual basis, made payable to the "United States Treasury". Additionally, this site is frequented by various Government Agencies, Commissions and mysterious crawling bots that originate from Washington DC. That being said, we have taken the liberty of creating the very simple chart positioned above. Our theory: A sustained increase in US light vehicle sales is rather unlikely if the cost of financing for this product continues to rise.

As is evident from the chart, interest rates for new auto loans have steadily risen since November of 2008-a point in time that coincides with a severe decline in the availability of financing for vehicles. Through the TALF, the Fed is aggressively attempting to restore the availability of auto finance credit. However, that is only half the battle. If the above trend continues, the Fed's actions will be muted. That is our humble opinion.
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