Podcast: Moody’s Analytics’ Brisson looks ahead at 2025

Captive lenders will remain aggressive in the auto space this year after tapping back into auto loans at the close of 2024, when delinquencies cooled. “Delinquency rates for captives have come down and they are improving,” Michael Brisson , director of economic research at Moody’s Analytics, tells Auto Finance News in today’s “Weekly Wrap” podcast. Captives will likely maintain increased appetite in the auto market given that they can “increase incentives not just through cash on the hood but through inverted rates, which helps out OEMs in terms of moving product,” he adds. Banks and credit unions, however, are going to “remain in a wait-and-see mode” as delinquencies in the fourth quarter continued to inch up but at a slower pace than before, Brisson says. Lenders’ “wait-and-see mode” reflects industrywide uncertainty following executive orders signed by President Donald Trump on Jan. 20. One signed order focused on eliminating federal EV subsidies could hamper automakers’ and consumers’ willingness to invest in eco-friendly vehicles this year. Another, which is focused on trade policy , highlights Trump’s plan to impose 25% tariffs on products from Canada and Mexico by Feb. 1. Trump’s hopes for added tariffs could fuel pricing instability by driving up vehicle values, adding to affordability woes and increasing automakers’ production costs. “The Trump administration's executive orders don't do anything right away, and there is nothing that was concrete put in place.” Brisson says. “However, in the minds of consumers, things have changed.” That said, there are bright spots in the market as Cox Automotive projects a year-over-year sales increase in nearly every market segment. Cox Auto projects: New-vehicle sales will increase 2.8% YoY to 16.3 million units at yearend 2025, the best year for new-vehicle sales since 2019; EV total market share will hit 10%, up from about 7.5% in 2024, making approximately one in every four vehicles sold or leased an EV in 2025; Full-year used-car sales will reach 20.1 million units, up 1.2% YoY; and CPO sales will decline 1.6% YoY to 2.5 million units in 2025. Listen to today’s episode of the “Weekly Wrap,” as Auto Finance News Associate Editor Ashley Savage discusses the auto finance landscape for 2025 with Brisson. Subscribe to “The Roadmap Podcast” on iTunes or Spotify , or download the episode. Editor’s note: This transcript has been generated by software and is being presented as is. Some transcription errors may remain. Ashley Savage: Hello everyone and welcome to the road map from auto Finance News. Since 1996, the nation's leading newsletter on automotive lending and leasing. Today we have a special edition of the road map where I'm joined by Michael Brisson, director of Economic Research at Moody's Analytics. In his time at Moody's, Mike has design built and managed Moody's auto residual value forecasting product, The auto cycle, in both the US and Australia. He is also credited with contributions to Moody's Economic Research Group, where he developed models for state and local government revenue forecast today. Mike and I are going to talk about the landscape for the auto finance sector in 2025. But before we dive in, I'd like to set the stage a bit. Executive order signed by President Donald Trump on January 20th emphasized his hopes to scale back available electric vehicle subsidies and increase tariffs on products from other countries, highlighting the uncertain trajectory of a post election auto market. One of the orders titled unleashing American Energy, aims in part to eliminate unfair subsidies and other I'll conceived government imposed market distortions that favor E vs over other technologies and renders other types of vehicles unaffordable. The other, and one of many, was an executive order titled America First Trade Policy, which noted the potential for increased tariff, increased tariffs on other countries to remedy the United States annual trade deficit with those actions in mind. Mike, I'd love to hear your thoughts on how consumer Demand might trail through Q1 versus the rest of the year under a Trump admin. Michael Brisson: Well, Ashley, thanks for having me. I really appreciate being here. The consumer would they would immediately go into. To the pricing. And so we're talking about increased incentives coming this year. You can totally write that off so that that part's not going to happen as the manufacturers are going to have to start dealing with every product being that crosses the border, dealing with 25% tax on those, or tariff on those. Those costs get put down. Consumers, so consumer would see this expected decrease in affordability that work projecting through the end of 25 to beaten up by these tariffs which get the the producers try to make up for that lost revenue with increased consumer from increased revenue from the consumer. AS So speaking with the consumer side of things and on the credit front, we saw delinquencies level out as 2024 wrapped up. Can you kind of paint the picture for what we can expect to see for delinquencies this year and how it differs among the lender types? MB Definitely. So delinquencies have been really interesting. Some of the most validal periods we've had since the financial crisis where coming out of 21 where the payment hierarchy. So people that means people pay their auto loans first because they didn't have to pay student loans some of their. Mortgages were deferred, so people were really paying at their auto loan. So the lowest delinquency rates ever. In our in our data set, and so this was led to a ton of lending. By the industry and the lending standards were a little bit looser and we also had a period where there was some credit score migration, so some worse quality lenders kind of moved up into the primary. And so those people are getting loans that what they would have norm. Not gotten and is this a credit structure started to normalize? We saw a lot of those loans that were prime start to default. So the prime default rates were much higher. Than they ever have been. And So what this all means is that the delinquency rates came up to two levels that we haven't seen since the financial crisis. And some score bands even higher than they were in the financial crisis. And this has led the so elevated delinquency rates has led to a slowdown in lending from. Banks and credit unions and captives, however, it's starting to normalize. We see that the finance lenders are now the delinquency rates for finance lenders, so. Your captives and your subprime lenders, those have come down and they are improving for banks and credit unions. So the commercial banks and credit unions, those lenders that take deposits, they have continued to deteriorate. They were a little bit later in the game, starting to lend and they were a little bit later in the game starting to pull back, which is meant that they've been slower turn around in terms of the delinquency levels. They have slowed their growth in delinquency rate and. We do consider them to be on the right trajectory and we expect. Turn the corner from slower growth to shrinking delinquencies because credit standards became extremely tight after 23, and we expect those loans to make up the majority of the amount lent over the next year or so. So we do expect that to turn around relatively soon in 2025 and we do expect that these decreasing delinquencies allow for both the banks and the finance lenders to continue to. Expand their books so increased lending. Over the next year or so. AS Gotcha. Yeah. And to your point with those sequences kind of like on track to to keep cooling and to kind of stabilize, how might the current admin affect that expected cooling and delinquencies, if at all? MB So there's some tangential ways that this might be impacted. So there's a large correlation between used vehicle prices and delinquencies, and we saw this happen again as used vehicle prices came down from 22 through 10 to 24 and delinquencies continue to rise and it's it's basically if your vehicle is worth less, you're less likely to. Pay for. I think that's the. The main thought behind it and we expect that the. New administration with the introduction of tariffs, or at least threat of tariffs and the continued high prices. So we expect less cooling for used vehicle prices. We expect less decrease in new vehicle prices because of the actions by the new administration. That's gonna have less downward pressure on prices, which we've seen to have a positive impact on delinquencies. So if there's any impact, I think it's gonna be through those channels where prices remain high. So that means the delinquency rate won't be pressured downward on the margins that we usually see from decreasing prices of new news vehicles. AS Gotcha. And then on the lender front and kind of as a final piece and some forward-looking comment, can you can you share you know with those delinquencies stabilizing but you know still not great in some areas, can you speak to kind of the lender appetite for the? Year on the in the auto space and and what your expectations are there? MB So I expect captive lenders to remain aggressive. They've picked up their lending at the end of last year and I expect that to continue. I think banks and credit unions are going to remain in a wait and see mode and wait to see if this ends up turning around in terms of what their book is currently made-up of. And so I think the captives, they especially have incentive because they have. Ability to increase the incentives through not just cash on the hood, but through. Inverted rates and and other methods which allow the captives to help out the OEMs in terms of moving product. So I think that there is going to be a larger pool of money available for consumers on the market this year compared with less, but the break up of who's giving it is going to remain tilted towards the finance lenders rather than the banks and credit unions. AS Perfect. Well, despite all of the uncertainty, what we do know is that this year will be an interesting ride. And Mike, I want to thank you again for joining us for this week's special edition of the road map and for sharing your thoughts on these corners of the auto finance industry. To those listening or watching. Thank you for joining us on the road map and be. Sure to follow us on X and LinkedIn, we will see you online at autofinancenews.net and here next time.

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