China's rebound signals hope for US auto market |

As the U.S. auto market continues to be hammered by the coronavirus economy, the “speed and magnitude” of the recovery in Chinese auto demand is a sign of hope for the industry, according to a research note by Moody’s Investors Service . In fact, after plunging 42% during the first three months of 2020 from prior-year levels, China’s auto sales climbed back to post a 4% year-over-year gain in April, which “signals a healthy rebound in demand,” Moody’s noted. Still, the rating agency expects auto unit sales in China to contract 10% to 23.2 million units — including both passenger and commercial vehicles — this year, despite signs that demand is beginning to return to normal levels. The U.S., however, has just started to experience notable signs of recovery after April sales figures posted a 34.3% decline in used-vehicle sales and a 47% drop off in new vehicle sales, according to Manheim . Yet, Moody’s noted the decline in U.S. light vehicle sales in April was “less severe than some forecasts predicted” due to incentives offered by automakers that kept sales “surprisingly resilient.” GM Financial , for one, looks to its experiences in China for guidance on its North American operations, company President and Chief Executive Dan Berce told Auto Finance News . “Operationally, there are lessons,” Berce said. “The auto industry was impacted more deeply in China than in the U.S. so the sales decline was deeper. But our GM originations in China are up year over year in both March and April, and our penetration of the OEM sales are higher than they’ve ever been.” “We expect trends like that in the U.S. because General Motors is running the 0% APR for 84 months promotion, which runs through GMF,” Berce said. The captive’s U.S. total loan and lease originations clocked in at $11.5 billion for the first quarter. As for the second quarter, GMF does expect delinquencies in the U.S. to increase and, in turn, losses will go up “primarily because unemployment has reached such high levels — the stimulus money won't last forever and our [deferral] programs are limited by how many we can grant,” Berce said. GMF noted in its first-quarter earnings that annual net charge-offs are expected to range from 2.0% to 2.5% in 2020. However, as delinquencies and losses recover in China, the expectation is for U.S. trends to follow. “In China, the consumer delinquencies and losses were elevated as a result of COVID-19, but they're actually recovering quite nicely at this point,” Berce said. GMF’s U.S. early-stage delinquencies — defined as 31-60 days past due — as a percentage of the total portfolio were just slightly higher YoY at 2.7%, while late-stage delinquencies remained relatively flat YoY at 1.1%.

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