Fed worries auto industry may feel most heat from rate hike

Cheap money driving auto sales?

One of the industries that will be most keyed in on what the Fed does with interest rates is the automobile sector, which has used seven years of cheap rates to rebound after nearly capsizing during the financial crisis.

Outside of banks, autos are arguably the most rate-dependent business. Light vehicle sales have about doubled since the crisis lows, from just more than 9 million in February 2009 to just more than 18 million in November 2015. That's still well below the 21.7 million peak in October 2001, but still a strong rebound.

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The industry has the Fed to thank for that.

In addition to the $80 billion government bailout for car companies, the U.S. central bank lowered its target funds rate to near zero in late 2008, resulting in bargain-basement lending rates that helped sales surge.

Though on a slightly upward trajectory, a five-year used car loan can still be had for a national average of 2.81 percent, while new-car financing comes with a 3.32 percent rate, according to Bankrate.com. Before the crisis, the same loans were going in the 8 percent range.

It's little wonder, then, that the Fed itself is expecting the auto industry to feel some reverberations once the rate-hiking cycle begins in earnest.

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