Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SATURDAY, January 18, 1992 TAG: 9201180152
SECTION: BUSINESS PAGE: A-6 EDITION: METRO
SOURCE: Associated Press
DATELINE: NEW YORK LENGTH: Medium
CAR LOANS GETTING CHEAPER; THINK SALES WILL GET A LIFT?
Interest rates on automobile loans are dropping, in some cases to levels not seen since the 1970s, dealers and bankers said Thursday. But whether cheaper credit will stimulate weak car sales remains to be seen."The good news for auto shoppers is cracks are starting to appear in auto rates for the first time in years," said Robert Dugger Economist Heady, publisher of the Florida-based Bank Rate Monitor, which follows trends in interest rates.
Nationwide, the average rate for a 4-year automobile loan charged by commercial banks to walk-in applicants was 10.49 percent this week. That's substantially cheaper than the 12.29 percent rate a year ago.
In the Roanoke Valley, most banks are charging less than 9 percent for new car loans. First Virginia lowered its 48-month auto loan rate Friday to 7.99 percent.
But it's unclear whether the lower rates will set off heavy consumer demand such as that seen in the refinancing of home mortgages, which also are at the lowest levels since the 1970s.
"Dealers are not too optimistic" about sales, said Mark Formica, executive vice president for consumer business at Dominion Bank. But he hopes business will pick up "in the not too distant future."
"We are still not seeing an increase in consumer loan demand," said Freda Carper, spokeswoman for Crestar Bank in Roanoke.
Until people can be sure their jobs are secure and the recession is easing, Carper said, "they are not going to jump out there and take out loans."
"Vehicle demand is a function of income and people getting back on the job," not interest rates, said John Franck, a vice president and automotive industry analyst for Provident National Bank in Philadelphia.
This week, the nation's automakers reported sales of domestically made vehicles fell 6.2 percent in early January from the already depressed levels a year earlier.
One explanation for the lack of demand for auto loans at banks is that other lenders, notably the automakers themselves, offer lower rates than the banks. Another is that interest on auto loans, unlike mortgages, isn't tax deductible.
Many consumers who own homes have chosen to finance car purchases through a home equity loan, which carries a much lower interest rate than an auto loan and the finance charge is deductible.
Robert Dugger, chief economist for the American Bankers Association, a trade group in Washington, said he was confident cheaper loan rates eventually would help auto sales rise.
"Will it work this month? Maybe not," he said. "Will it work within six months? Yes."
As rates decline, he said, more consumers will find they can afford the monthly payments on new-car loans.
Business writer Mag Poff contributed to this story.