Investing.com –Morningstar DBRS expects a stable credit rating environment for the U.S. auto finance sector in 2025, supported by a resilient consumer and steady vehicle sales.
While challenges such as potential tariffs and slower electric vehicle adoption loom for automakers, healthy consumer demand is likely to sustain new auto loan originations. Affordability pressures on new vehicles could also drive robust used vehicle financing and keep used car values strong.
Large auto finance firms are expected to post solid earnings, but smaller players focused on nonprime borrowers may face headwinds from elevated provisioning and higher funding costs amid persistent interest rate pressures.
Morningstar anticipates a softening in credit performance as the cycle matures, particularly among nonprime borrowers, as strained household budgets grapple with high living costs. However, funding access for sector companies remained robust in 2024 and is expected to continue.
Potential tariffs on new vehicle imports could pressure the economy but may boost demand for used cars, benefiting used vehicle lenders and mitigating loss severities by keeping used vehicle prices firm, the note added.
“We expect earnings for the large auto finance companies to be resilient in 2025, benefiting from solid levels of originations, partially offset by elevated funding expense and higher credit costs,” analyst wrote.