Though Fitch Ratings expects the outlook for most individual auto lenders to be “stable,” the agency has assigned a “negative” outlook to the sector. Fitch’s rationale: increased nonprime lending, eased underwriting standards, continued moderation in used-car values, and heightened regulatory scrutiny, according to a report released today.
“Still, Fitch does not expect significant deterioration in asset quality metrics in 2014 and expects auto lenders to remain focused on emerging risks associated with longer loan terms, higher loan to values, aggressive loan pricing, and potential residual value declines,” according to Fitch’s fourth-quarter 2013 review of U.S. auto asset quality.
Fitch cited the Federal Reserve’s January survey on bank lending practices, which reported that during the last quarter, 14.9% of banks surveyed continued to relax credit terms. Fed survey respondents who reported eased credit terms said that most changes occurred in loan pricing. A modest portion of lenders also indicated that easing occurred in down payment requirements, credit scores, and loan maturities.
Much like Standard & Poor’s report yesterday, Fitch expects asset quality to weaken this year.