(AFS22) Interest rates, inflation and the Fed: 3 key themes at the Auto Finance Summit
This story was originally published on Auto Finance News on Oct. 25,2022
The auto finance industry is operating against a backdrop of uncertainty defined by rising interest rates, higher cost of funds, record-high vehicle prices and wavering consumer demand, further heightening the need for collaboration.
The Auto Finance Summit kicks off Wednesday, Oct. 26, at the Wynn in Las Vegas and brings together top industry executives to discuss key themes such as inflation, digital transformation, and sourcing and retaining talent in a strong, yet competitive labor market.
Eyes on the Fed
Rising interest rates and the U.S. Federal Reserve’s attempt to tamp down an historic inflation spike will certainly be a prominent undercurrent throughout the three days of sessions this week. It is nearly a done deal that the Federal Open Market Committee will increase the benchmark interest rate by 75 basis points next week for a fourth time this year, with all signs pointing to yet another rate increase before the year is out.
Already, the Fed’s actions are having a cascading effect on the auto finance market. Lenders’ costs of funds are rising, no matter where the funds are secured, and yields are tightening. Meanwhile, new vehicles are still as expensive as they’ve ever been and spreads in the auto asset-backed securitization (ABS) market have been widening since March.
Although inflation is expected to slow substantially in the next year, some industry experts warn of the potential fallout of the Fed rising rates too high and too fast — a question that will be considered not just during the Auto Finance Summit, but by the auto finance industry as a whole as we move into 2023.
If the pandemic has made one thing certain, financial institutions can no longer be satisfied with simply lending money — they must also become technology companies. This transformation is already well underway in auto finance and will inevitably continue as market pressures remain and lenders look to increase efficiencies and manage mounting risks.
Widening the talent net
As financial institutions become more tech-focused, there is a greater need to fill roles with specific skill sets, prompting companies to look outside of the proverbial talent pool. Lenders are casting the talent net wider by hiring remote employees, sourcing them from college fairs and leaning on referrals — a move that is especially necessary in the current competitive labor market.
While unemployment is inching up, it remains at a historic low and job openings are the highest they have been in decades. This can change if the Fed misses its mark and sends the economy into a recession.
Interested in attending Auto Finance Summit 2023? Registration is now open.