In the wake of record auto lending and leasing last quarter, a new forecast published today has even more healthy growth in store for the auto finance sector.
DBRS released a review of the asset-backed securitization market today, and in it the credit rating agency touted auto finance’s bright future:
Growth in auto lending has been underpinned by strong U.S. auto sales, improving consumer confidence, the advanced average age of the U.S. fleet, and widely available liquidity at low rates. … Looking forward, DBRS expects volumes to be up in auto lending, underpinned by the expectations of a solid increase in new vehicle sales.
This is coming within the context of a return to expansion for the U.S. household debt cycle. Indeed, “DBRS anticipates that the labor market will continue to gradually strengthen and the financial position of U.S. households will remain relatively healthy,” which is why the credit rating agency “expects ratings for consumer finance companies and banks, in general, to remain stable.”
Here’s how DBRS describes the current household debt situation:
After the intensity and depth of the last recession, many U.S. households acted to repair their balance sheets and strengthen their overall financial position. From a peak of $12.7 trillion in 3Q08, debt of U.S. households declined by nearly 3% annually to $11.2 trillion at the end of June 2013. Now, household debt has begun to rise. Households are benefitting from an improving labor market and a positive “wealth effect” driven by higher stock markets and a modest recovery in house prices, putting them in a better position to support an increased level of obligations. Although U.S. household debt has been growing, asset quality metrics have remained largely favorable so far and still supportive of finance company ratings.
Over the last 12 months, asset quality metrics across most consumer asset classes have improved with better economic conditions and the low rate environment. Lower energy prices have also provided a modest lift to certain subsectors. With the exception of student loans, most asset classes are reporting asset quality metrics that remain superior to levels observed prior to the last recession.
This is good news for auto finance. Mostly.
Over the outlook horizon, DBRS expects that improving consumer confidence and positive labor market developments will underpin further growth in U.S. household debt levels, although the pace of growth will vary by sector. With the strengthened financial position of U.S. households, DBRS sees U.S. household balance sheets as able to support the current growth in debt levels. …
Although job market trends are likely to remain favorable, DBRS expects consumer credit performance over the outlook horizon of the next 12 months to deteriorate with a gradual normalization across most consumer asset classes.
Well, you can’t have it all.
