2025 European Auto Finance Outlook: Largely Stable Despite Certain Challenges

This commentary analyses the H1 2024 aggregated performance of large captive finance companies and large auto leasing companies and provides our 2025 credit outlook for the European auto finance sector.

Key highlights include:
-- European auto finance companies showed sound performance in 2024, despite elevated funding costs amid high interest rates.

-- We expect large European auto finance companies to benefit from gradual economic recovery and lower interest rates in 2025.

-- Certain challenges, including potentially higher tariffs, a struggling European auto sector, and an ongoing probe in the UK could negatively affect their earnings, but we expect performance to remain resilient in 2025.

"Our stable outlook mainly reflects the gradual economic recovery in their core European markets amid lower interest rates, which will likely support new auto finance business volumes and lead to a more favourable cost of funding", said Halil Senturk, Assistant Vice President, European Financial Institution Ratings, Morningstar DBRS. "Asset quality will continue to be strong, as borrowers proved to be resilient to high inflation and rising interest rates."