Interest Rate Increases and the Automotive Industry - Help me Understand

So we saw another rate hike yesterday. I understand how this is SUPPOSED to work, it’s supposed to slow the supply of cheap money. In the current environment transaction prices have all gone up because supply is low and demand is high, how does increasing the interest rate help anything. Wouldn’t it just increase the damn transaction price EVEN MORE?

The average Joe isn’t flipping cars and making money like some of us here, they’re out buying a car because they need one, possibly during the worst time to purchase in decades (if not ever). How does increasing the rate while supply is still the core issue fix anything?

No one is putting a gun to anyone’s head and making them run out and take a high interest loan on a blessed car over 60k.

Rate increases are supposed to discourage frivolous lending, but if people are willing to take the risks and enrich banks then that’s on them.

This entire environment makes zero sense and has defied my understanding of traditional economics. I’ve just resigned myself to accepting this is how things are now and how they are going to be.


I suppose my point is that prices are high mostly because of:

-China still shutting down randomly, slowing the flow of goods
-Free money from covid disrupted entry level jobs, no idea how people are still surviving when nobody wants to work

Until most of the items above get fixed, we don’t get back to normal supply/inventory which means demand outstrips supply.

I don’t understand how this thought is so pervasive. It makes no societal sense. You can’t survive without money and you can’t make money without working. Do people really think the 2,200 stimulus relief payments were enough to last in this inflated environment over two years?

People want to work. Just not for low wages and in hostile environments.


I’m no economist so take this with a grain of salt. My understanding is that increasing rates will/might help stabilize demand for certain goods.

With regards to the car market, there are still supply chain issues, currency fluctuation, and other issues manufacturers are dealing with. On the bright side, I am seeing more and more brokers advertising close to pre-Covid discounts off MSRP on certain brands/models. MF still sucks on certain leases, hence financing might be a better option in certain situations.

I will let economic/financial experts share more knowledge on this.

Demand destruction


There are people that legitimately have a beef about low wages and hostile work environments and there a lot of people with a delusional sense of what their labor is really worth and interpret any sort of uncomfort as hostile.


:100: - I have been working remotely since the pandemic started. My company permanently shut down the office closest to me, since most folks were working from home. I am lucky to have a flexible work schedule, and I sympathize with folks who are not that fortunate. I am also lucky that I get paid well (but still below market value).

I do not want to derail this thread but I feel the need to respond this. I work in tech for a public company. I am not an engineer and I do not work for one of the FAANGs (For folks who don’t get the acronym, please look it up). I follow the industry quite a bit and there have been lots of companies that have laid off staff these past few months (, rescinded job offers to new hires and even frozen hiring. I have been passively searching for a new job over the past few months, and all I can say is that some companies have no clue what they are doing when it comes to hiring. I am at a stage in my career (with more than 10+ years of experience in my field) where I am not going to settle for a junior-level role or for less money (based on my research) than current market value.

Don’t get me wrong, there are still companies out there hiring, and there are still some good and honest recruiters out there. I have probably spoken to 30+ recruiters and most have been upfront about the role and salary requirements. The issue is, there are a lot more folks looking for work than what is available. Some companies say they are hiring, but they are just collecting resumes for their database. To the companies who claim they can’t find people to work, I call BS on that.

My $0.02.


The US white collar labor market turned almost 180 degrees between spring and fall of this year. My clients also tend to be non-FAANGs (tech or tech-related) who struggled to the hire the first half of the year, now they are having better luck finding higher quality candidates as the market cools. They are still paying for talent, but the talent seems more serious (not just shopping for an offer) and the pace is such that you can actually see if it’s a fit on both sides in a reasonable timeframe.

Whether it’s cars, housing, labor, container shipping — they have all been too hot for too long. The antidote doesn’t need to be a crash if the brakes are tapped soon enough (tbd).

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I guess my point is that the automotive, housing, and shipping markets all have a lack of supply. Until supply improves, we don’t fix anything unless demand drops significantly. Cutting demand steeply means we get closer to a crash. Don’t know the answer, but curbing demand when supply is still constrained doesn’t sound like the answer.

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I have noticed that used car prices have been decreasing hard the past 30 days but new cars are still rocking and rolling since inventory is non-existent. Here are my two general conversations:

New Cars: “The rates are pretty high now, the lowest we can get is 6%”. Customer: “Okay, I will just pay cash”.

Used Car: “The rates are pretty high now, the lowest we can get is 6%”. Customer: “That is ridiculous. My last loan was .0001% and the bank paid me to take out the loan. And I want $10k over retail since the news says used cars are at a premium. If you can’t do that, I will just wait until the rates get lowered next month”.

The last used car I sold grossed $68 and we just decreased prices on everything, some of them in the 5 figure ballpark.



Some folks need a car, but that is becoming rare in my personal experience; they want them. The last time I remember someone needing a car was decades ago. A friend’s car was constantly in the shop and would not last much longer. Her father offered to pay cash for an affordable brand new truck (Toyota) – she did not want the free truck and took out a loan for a used Acura Integra GSR. So unless someone’s car is on its last legs or gets totaled, they can (and should) wait. But we no longer live in that type of society of common sense.

I have a friend buying a home right now, but although overpriced, she will be paying more for a one-bedroom apartment than a 3-4 bedroom house when her rent increase hits in a few months. I can see the logic there, but overpaying for things you do not need and are depreciating assets? You will not have them long.

A collapse is coming because one day, they will find out that overpaying is never sustainable. You eventually lose what you acquired. It takes a single layoff or unexpected event, and it is over.


Not everyone lives somewhere with public transportation or even reliable ridesharing apps


Your statement is very accurate, so I added the personal experience aspect.

I would hate to need a vehicle presently.

we’re getting into prime storm season, and if something big hits, its going to become a real mess.


I have seen this too…

There are only so many people who can afford to pay 5,6,7,8,-15,20k ADM for cars along with rising interest rates.

Something is going to have to give & it’s not going to be the “interest rate” for sure.

I could get to the airport this evening with three buses and some walking / dragging my luggage behind me.

It will take 1 hour and 29 minutes to get there right now, under what appears to be ideal traffic conditions.

Next best option is only two buses, 1 hour 59 minutes, and a lot more walking.

We are 15 miles from the airport. When everything goes wrong, driving takes 25 minutes.


Thought this might be interesting:

Data is apparently pulled from US census bureau.


Work smarter, not harder.


Before this post I was only 99.8% sure you were my 3rd grade teacher, Mrs. Truesday. Thanks for confirming!