New Car Sales Rise Despite High Interest Rates, Inflation Skip to content

New Car Sales Rise Despite High Interest Rates, Inflation

By Ragnar Tómas

driving in reykjavík
Photo: Golli (eastward bound traffic from Reykjavík).

The sale of new cars rose during the month of May when compared to sales during the same month last year, RÚV reports. This increase is even more pronounced among individual buyers. A total of 695 new cars were purchased in May, compared to 511 last year: an increase of over 36%.

Up by nearly 15%

As noted in an article on the website of the Icelandic Federation for Motor Trades and Repairs (i.e. Bílgreinasmbandið, an association of employers in the sale of vehicles, products, and services) in early of May, sales of new vehicles in April increased by 16.1% compared to April of last year; a total of 1,629 new were registered compared to 1,403 last year. “Overall, after the first four months of the year, sales of newly registered vehicles have increased by 11%. This year, 5,129 new passenger cars have been sold compared to 4,621 new passenger cars last year,” the articles notes.

This trend has continued in May. Although high interest rates and inflation have a significant impact on those buying vehicles on credit, this is not yet reflected in the figures for car sales in the month of May, María Jóna Magnúsdóttir, Managing Director of the Icelandic Federation for Motor Trades and Repairs, stated in an interview with RÚV.

As noted by RÚV, sales of new cars rose in May, compared to the same month last year, increasing by over 36%. Electric cars account for the most significant part of the increase. “There is a considerable increase, especially among individual buyers. The main reason for that is that in May of last year, the supply of electric cars was small; electric vehicles form a large share of the vehicles sold to individuals this May. Last year there were about 278 electric vehicles sold to individuals, compared to about 500 in May of this year,” María Jóna observed.

Tesla may skew the statistics

Electric cars are by far the most popular type of vehicle, accounting for nearly 40% of all cars sold, with electric, hybrid, and plug-in hybrid cars being 75% of the total of new cars sold. RÚV notes that Toyotas are the most popular of new cars followed by Teslas. As Tesla often delivers more vehicles at once, compared to other manufacturers, this may serve to skew the statistics. “Tesla has become big in the individual market, and when they’re delivering such a number of vehicles at short intervals, it affects the market, which means that it’s good to review the figures over a longer period for more accurate data.”

Starting to have an impact

Car rentals purchase a significant number of vehicles at this time of year. Sales to individual buyers, however, are noteworthy – especially in light of the current conditions, i.e. high inflation and high interest rates. “If we examine the numbers over the whole year, new car sales to individuals are up by about 3.6%.”

When asked if the figures in May had begun to reflect higher interest rates and borrowing fees, María responded thusly: “No, maybe not at this exact moment, but, of course, it’s beginning to have an impact; when car loans are almost in the double digits, it begins to affect buyers who are financing with loans,” María Jóna observed.

In a recent interview on Bankrate, Sarah Foster, senior US economy reporter, explained the effect of inflation on auto loan rates, noting the goal of higher interest rates in layman’s terms: “Higher borrowing costs don’t just disincentivize spending but squeeze people out of being able to afford big-ticket items, causing the economy to slow … the hope is that eventually, those higher rates will crush demand so much that inflation eventually drops.”

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