Modest Rate Hike Unlikely to Curb Auto Demand, Though Dealers Face EPS Risks, UBS Says

12:56 PM EDT, 10/16/2026 (MT Newswires) -- A modest increase in interest rates is unlikely to dampen auto demand, though it could still hurt dealers in particular due to their floating debt structure, UBS Securities said in a note sent to clients Friday. Last month, the Federal Reserve raised interest rates by 25 basis points to cool inflation, which marked the US central bank's first rate hike in just over three years. A 25-basis-point increase adds about $5 to a consumer's monthly car payment, UBS projected. The impact is "manageable," especially as it could be offset through measures like term extension, analysts including Joseph Spak wrote. Official data on Thursday showed that US retail sales increased more than expected in September as outlays at gas stations rose amid elevated fuel prices. Sales at motor vehicle and parts dealers slowed to 0.2% from 0.7% on a monthly basis. While auto manufacturers and parts suppliers look relatively safe because of low floating-rate exposure, dealers appear to be the "most exposed" to a higher rate environment, the brokerage said. "Dealers are where we start to get some impact because we are considering floor-plan financing, which tends to be floating rate debt," Spak wrote. A 50-basis-point increase in interest expense could trim 2026 earnings per share by roughly 3% for the dealer group. The impact on profit and loss will be the most pronounced for car dealers Sonic Automotive (SAH) and Lithia Motors (LAD), with their 2026 earnings likely to drop by about 5% and 4%, respectively, Spak wrote. Carvana (CVNA) and CarMax (KMX) could see a negative impact of about 1% each to their EPS. The amount of floating debt at Ford Credit and GM Financial "is very minor," according to the brokerage. Ford Credit is the financial services arm of Ford (F), while GM Financial is the captive finance subsidiary of General Motors (GM). Some 22% and 21% of Ford Credit's and GM Financial's debt is due to mature next year, which could trigger refinancing needs, according to the brokerage. "We note both entities have assets against these liabilities," Spak said. "But, refinancing needs to occur to fund new loans/leases. While funding costs may move up, it is difficult to assess the earnings impact." UBS said the auto financing businesses of AutoNation (AN), CarMax and Lithia also have floating and refinancing components. Price: 63.54, Change: +0.02, Percent Change: +0.04