The Federal Reserve has held interest rates near zero since December of 2008. The FED has indicated it would raise the interest rates in September and held off on taking any action due to global economic factors.
Within the FED itself there is considerable debate on “when” to raise interest rates and by how much. There is little or no debate that interest rates will rise sooner rather than later and very likely a hike is expected in December and could possibly occur at the FED’s second to last scheduled meeting in late October or its final session in December.
So, what does a rate hike mean for vehicle leases or purchases? A great deal.
A rate hike on federal long-term debt will cause interest rates to climb. That would likely make leasing or purchasing a new vehicle more expensive. An interest rate hike would likely also impact automakers themselves and could result in the price of vehicles rising, not just financing or lease costs.
While a .25 or quarter point rate hike would not likely knock the wheels off anyone’s budget, the seemingly small hike could have substantial impacts on larger fleets.
Corporate Fleet Services is suggesting that leasing clients who need to replace vehicles in their fleets should do so sooner than later and take advantages of the last of these record low interest rates. Further, fleet managers and small business owners may want to consider extending their normal lease term by an extra year or two. Historically, we can expect a change in the economy in the next two years. Given global debt loads and the U.S. debt ratio, interest rates could likely spike in 2016 and beyond.
Thus, the argument for extending low-interest, locked in contractual rates for a 3, 4 or even 5 year lease, assuming that fits in with vehicle usage. Whether the FED chooses a quarter point interest hike, financial institutions are likely to follow suit and the costs of products and services will no doubt be passed on in the form of higher prices on everything from automobiles to home mortgages.
Whatever happens, it would be wise to take special care and conduct an audit of your current fleet this Autumn and assess your needs for new vehicles and make some calculations based on current rates and a hike of .25 or even .50 point in interest rates and multiply that by your fleet needs. Corporate Fleet Services routinely provides this “Fleet Review Analysis” for our clients and we can also help by giving you our expert advise on results of recent vehicle auction remarketing. Now may be just the perfect time to take a look at your company’s vehicle lease or purchasing needs.
By Pete Stevens
Corporate Fleet Services, Inc.
Published in the Letter To The Editor section of Automotive Fleet Magazine 11.2015