Plateau in U.S. auto sales heightens risk for lenders: Moody's

Mon Mar 27, 2017 8:48am EDT
 
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By Nick Carey

DETROIT (Reuters) - As U.S. auto sales have peaked, competition to finance car loans is set to intensify and drive increased credit risk for auto lenders, Moody's Investors Service said in a report released on Monday.

"The combination of plateauing auto sales, growing negative equity from consumers and lenders' willingness to offer flexible loan terms is a significant credit risk for lenders," Jason Grohotolski, a senior credit officer at Moody's and one of the report's authors, told Reuters.

Motor vehicle sales have boomed in the years since the Great Recession. U.S. sales of new cars and trucks hit a record annual high of 17.55 million units in 2016.

Industry consultants J.D. Power and LMC Automotive on Friday reiterated their forecast for a 0.2 percent increase in sales in 2017 to 17.6 million vehicles.

But Moody's says it expects U.S. new vehicle sales to decline slightly to 17.4 million units in 2017.

In its view, that would mean lenders will be chasing fewer loans, "which could cause them to further loosen loan terms and loan to value criteria."

Over the past several years, lenders have supported automotive credit growth with "accommodative financing," including longer loan terms, the report added.

"With every successive year, lenders' profitability is getting thinner and thinner, and their credit losses have been growing," Grohotolski said.   Continued...

 
FILE PHOTO --  Automobiles are shown for sale at a car dealership in Carlsbad, California, U.S. May 2, 2016.  REUTERS/Mike Blake/File Photo