The Federal Reserve has managed to aggressively raise interest rates and tighten financial conditions so much that it sparked a regional banking crisis and unleashed contagion in European banks. Even before the banking meltdown, financial conditions were tight, pressuring subprime consumers the most.
A new Federal Reserve Bank of New York survey shows the auto loan denial rate rose to 9.1%, a six-year high in February -- and up from 5.8% in October.
We suspect denial rates will continue increasing as banks lose faith in subprime consumers. Earlier this year, when discussing the "perfect storm" hitting the US auto market, we showed that according to Fitch, "More Americans Can't Afford Their Car Payments Than During The Peak Of Financial Crisis".
The good news for the auto market is that tighter financial conditions have reduced the number of people buying new cars. However, that could only shift more consumers to the used car market in search of deals. Used car prices are reaccelerating.