Morgan Stanley is expecting an “unprecedented” expansion of auto credit for the upcoming year, Equity Analyst Adam Jonas said in a recent Morgan Stanley report.
Part of the rationale for this expansion is that U.S. auto sales are forecasted to drop 5% to 16.5 million units. Extending more loans — via new products, markets, or into new credit buckets — may prevent a larger drop in sales. However, it’s hard to accurately predict year-over-year same-store sales for the second half of 2017 due to unusually high demand following Hurricanes Harvey and Irma.
Roughly 95% of U.S. auto purchases are financed or leased, with nearly 70% of the financing provided by captives, according to the report. Additionally, if vehicle mix of SUVs and pickups continue to increase, then the value of the SAAR for 2018 could remain on par with levels seen in 2017 supporting industry profitability for yet another year, he said.
Additionally, leasing growth is projected to continue or accelerate, because consumers want to avoid long-term ownership of a vehicle that could experience a devaluation during a time of rapid improvement in vehicle connectivity, electrification, and active safety technology. However, this trend may lead to a significant risk of about $2 trillion worth of declining vehicle assets on the road, and will face “unprecedented risk, contributing to a consumer credit challenge that threatens affordability of both new and gently used cars.”Like This Post