Despite a stronger than expected finish to the year, Fitch Ratings has revised its outlook on the auto finance sector to “worsening” from “stable,” largely due to an expected deterioration of credit quality as a result of the COVID-19 pandemic.
Captive finance companies, such as American Honda Finance Corp., Ford Motor Credit and GM Financial have “demonstrated resilience” since the start of the pandemic, according to Fitch, but consumer credit performance has largely been propped up by government stimulus, widespread loan modification programs and increasing used-vehicle values.
Credit losses improved “modestly” in the first 9 months of 2020 at captives, with average charge-offs dropping 16 basis points year over year to 0.74%. Still, rising unemployment and new coronavirus cases could pose a headwind for the industry in the first half of 2021. Vaccine dispersion, coupled with relaxed social distancing requirements, should help recovery in the second half of the year.