The auto industry is on a high note today, but there’s not much left in the market — whether in the form of macroeconomic factors or auto industry tailwinds — to take the auto finance sector “to the next level,” analysts said at the American Financial Services Association Credit Summit for Fixed Income Investors in New York on Wednesday.
“There is a lot more going right than isn’t,” said Matthew Beagle, vice president and senior credit analyst, Hartford Investment Management Co., citing the current SAAR in the range of 16.5 million to 17.5 million.
“We could hang out here for a sustainable future. [However], low interest rates will not remain low for a sustainable future. We are going to come off from where we are, but there doesn’t seem to be another crash on the horizon,” he said in a panel discussion.
Others from Wall Street agreed that a slowdown appears to be in the works, but when it comes, it looks to be gradual.
“We see a softening environment,” said Jason Grohotolski, vice president and senior analyst, financial institutions group, Moody’s Investors Service, of today’s auto finance industry. “The manufacturers have been very disciplined in not offering incentives. Hopefully, they will stay disciplined, but when you get that softening — that is when that starts to happen.”
Importantly, Goldman Sachs & Co. credit research analysts agree. Brian Jacoby, managing director, credit research at Goldman, pointed out that while incentives are low industrywide, the volume of cars coming off lease is poised to spike later this year and into 2016 — and that will “influence” used car prices.
Jacoby, who moderated the panel, wondered aloud, “Why are we so confident that the manufacturers will be disciplined?”
To that question, Beagle answered, “The jury is still out.”