Manheim chief economist Tom Webb explained any potential impact the latest moves by the Federal Reserve might have on auto financing as part of his March Auto Industry Brief.

First, Webb recapped that the Fed dropped the word “patient” earlier this month in regard to an interest rate rise. However, he noted the Fed also lowered both its forecast for economic growth and its expectations for year-end rate levels.

“Those later actions, plus what was deemed a ‘dovish’ press conference by Fed chair Janet Yellen, created an immediate upswing in U.S. equity markets,” Webb said, adding that it also temporarily reversed the surging dollar.

“Yes, every word choice (or even comma placement) by the Fed can still cause market gyrations,” he continued. “That’s not the way it is supposed to be six years into a slow, stable recovery with record amounts of liquidity. Attention is being diverted from the real issue.”

So what is that real issue? In fighting the financial collapse, Webb indicated the Fed was forced to take unprecedented steps and create a more complicated monetary system.

“The less kind would say a house of cards,” Webb said. “Regardless, the dismantling of the near-zero interest rate policy will take finesse, and in my opinion, the pivot in policy — even if just in words — should begin."

And that pivot Webb described is what might impact showroom and F&I activities along with originations.

Webb predicted that a half-point, or even a full-point, increase in the Fed target rate should not materially impact today’s “very favorable” retail financing environment. He emphasized that investors will still be attracted to the higher return provided by auto paper.

“And that paper should continue to perform well,” Webb said.

As previously reported by SubPrime Auto Finance News, Webb referenced Fitch Ratings’ latest analysis that showed annualized net losses on subprime auto loans have recently moved above their 10-year average, but they are nowhere near recession peaks.

“And, even though Fitch believes that loan performance will continue to soften in the months ahead, it believes that heated competition will lead to an easing in underwriting standards,” Webb said. “That would probably be a step too far — and one we hope lenders don’t take — but there is little likelihood of a significant tightening in the near term.

“As we have noted in the past, there may be a heightened desire on the part of lenders for more up-front money, but that should not be a hurdle that salespeople and the F&I office can’t handle,” he went on to say.