It’s an unprecedented economic downturn. The U.S. Federal Reserve has announced plans to raise interest rates from 5.25% to 5.50%, putting the entire world on edge.
In Korea, the Bank of Korea has maintained its base rate at 3.50% for four consecutive months. However, due to the outflow of funds from Saemaul Geumgo and other reasons, the average funding rate of eight domestic banks has risen continuously for six months to 3.80%. Korean automakers are also feeling the pressure from the U.S. interest rate hikes and the rise in domestic bank funding rates.
Hyundai Capital applied an interest rate of 5.9% to a 60-month basic installment plan for Hyundai and Kia’s passenger models back in March, but it has since decreased slightly to a base rate of 5.6%. However, due to rising funding rates, there are signs that installment interest rates may rebound again.
The domestic sales department of Kia stated, “We expect that the installment interest rates will rise again due to the increase in funding rates and the U.S. Federal Reserve’s rate hikes.”
Foreign automotive companies are not in a comfortable position either. While they do not rely on domestic interest rates since they fund from their own country’s banks, they are still affected by their home country’s rates. For instance, if Mercedes-Benz Finance raises capital from its home bank, Deutsche Bank, it borrows money at a funding rate of 5.00% due to the European Central Bank’s benchmark rate of 4.00%. Adding labor costs and profits for operating its capital company leads to installment rates of 9.58% for Mercedes-Benz Finance and 10.36% for BMW Finance, as per the guidelines established by the Credit Finance Association.
Sales staff are not pleased with the rate hikes. A current domestic car salesman lamented, “Due to high interest rates, customer footfall has vanished.” This situation mirrors the experience of sales staff for imported cars. A German car importer expressed, “Due to customers’ financial difficulties, contract cancellations are on the rise.”
It’s intriguing to see how the automotive industry will navigate the thorny path predicted for the latter half of the year.
Lee Sang-jin daedusj@autodiary.kr