DBRS Morningstar Releases “U.S. Auto Finance 2021 Outlook: A Winding Road Ahead”

DBRS, Inc. (DBRS Morningstar) published a commentary reviewing the 2021 outlook for the auto finance sector. Overall, for 2021, we expect solid operating performance from the U.S. auto finance companies we follow despite the still challenging near-term economic outlook. Although the job market recovery remains uneven, we anticipate new vehicle sales volumes will be higher year-over-year and used vehicle sales volumes will remain strong.

Key highlights include:

-- DBRS Morningstar has revised its U.S. Auto Finance sector outlook to Stable from Negative. The outlook recognizes the outperformance to expectations by the sector in 2020 and that the auto finance companies followed by DBRS Morningstar have the ability to absorb the expected rise in credit losses in 2021.
-- While new and used vehicle sales have recovered more rapidly than expected, DBRS Morningstar expects 2021 new sales volumes to remain below pre-pandemic levels while used vehicle values are likely to moderate, leading to higher loss severities and reduced gains on vehicle disposition, including lease terminations.
-- We expect a gradual economic recovery and persistently elevated levels of unemployment. As such, we anticipate a more pronounced deterioration in credit performance as 2021 progresses, especially in higher credit risk portfolios.

“For 2021, we anticipate that earnings growth will be modest. We expect that the continuing recovery in sales volumes supported by an uneven but improving labor market and low interest rates will benefit earning assets, driving revenue expansion. However, downward pressure on auto loan performance; especially in the subprime sector and a moderate decline in used vehicle values will be headwinds,” said David Laterza, Senior Vice President, Head of U.S. Non-Bank Financials.

Notes:
The commentary is available at www.dbrsmorningstar.com.

For more information, visit www.dbrsmorningstar.com or contact us at [email protected].

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