January 08, 2014 at 13:35 PM EST
Auto Sales Are Dropping
NASDAQ:TSLA, NASDAQ:CARZ Related posts: Auto Sales Reveal a Recovery That’s Built to Last October’s Upbeat Home Sales Good News For Bears? Profiting On Existing U.S. Home Sales Whether They Soar or Sour Stocks Bucking The Weak Sales Growth Trend Real Retail Sales Per Capita: Another Perspective On The Economy

automobileMichael Lombardi: All of a sudden, auto sales (NASDAQ:CARZ) are declining…

Auto sales in the U.S. economy declined to an annual rate of 15.4 million units in December. In November, this number stood at 16.41 million units—a decline of more than six percent. (Source: Motor Intelligence, January 3, 2014.) Analysts were caught off guard by the decline in December auto sales; they were expecting an increase!

I see the decline in auto sales as being directly related to rising interest rates. And it’s not going to get any better.

For years now (since the Credit Crisis), auto sales have been increasing due to low interest rates. It’s very similar to what happened to the housing market prior to 2007. More and more people went on a house-buying spree when the mortgage rates were at record lows. When mortgage rates started to increase in 2007, the already-inflated housing market got hit hard. The same thing is happening to auto sales now.

Interest rates are rising again. Look at the chart below of the bellwether 10-year U.S. Treasury. Since November, the yield on the 10-year U.S. Treasury has gone up roughly 20%. The higher interest rates go, the weaker auto sales will get. (And we can already see the impact on the auto stocks. The stocks of America’s major car makers are off five percent from their 2013 peak, but key stock indices are near their peaks.)

10 Year Treasury Note Yield Chart

Chart courtesy of www.StockCharts.com

Rising interest rates will have the biggest impact on auto loans given to subprime borrowers (those who have a lower credit standing).

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Related posts:

  1. Auto Sales Reveal a Recovery That’s Built to Last
  2. October’s Upbeat Home Sales Good News For Bears?
  3. Profiting On Existing U.S. Home Sales Whether They Soar or Sour
  4. Stocks Bucking The Weak Sales Growth Trend
  5. Real Retail Sales Per Capita: Another Perspective On The Economy

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