Auto financing gains momentum in U.S. despite auto lending concerns

Scotiabank

TORONTO, ON--(Marketwired - December 07, 2016) - Global car sales posted a further solid advance in October, climbing 5% above a year earlier. Asia continued to lead the way, with gains buoyed by a 23% surge in China. More recent data for North America indicate that new vehicle sales revved up to monthly highs for November in all three NAFTA countries. Volumes in both Canada and Mexico posted double-digit year-over-year advances, while U.S. purchases exceeded expectations.

Subprime auto delinquencies are on the rise in the United States, but represent a small share of household debt, pointing to limited risk. Nevertheless, weaker-than-expected Q3 earnings at a major automaker combined with reports of increased vehicle repossessions and subprime auto loan delinquencies have led to unease about the prospects for U.S. auto sales next year.

"We believe these developments are a reflection of the increase in number of vehicles being financed, and not a sign of weakening demand," said Carlos Gomes, Senior Economist and Auto Industry Specialist at Scotiabank. "We maintain our view that replacement of an aging fleet combined with rising incomes and improving household balance sheets are likely to lift U.S. new vehicle sales to new heights in 2016 and 2017."

The overall U.S. auto loan portfolio remains stable. U.S. purchases of new and used vehicles have climbed 2% so far this year and are on target to surpass the 2015 annual total of 57 million units -- one of the highest levels of the past decade. However, even with this year's gain, overall vehicle sales in the U.S. still remain below the roughly 60 million units that were normal each year between 2001 and 2006.

Data from Experian, a leading global information services company, indicate that more than 86% of all new vehicles in the United States are currently financed, as well as 56% of all used vehicles. Given the growth in automotive lending, it should not be a surprise that the number of repossessed vehicles and delinquencies are on the rise. However, the key metric that analysts and commentators should focus on to gauge the health of the industry is not the absolute level of repossessions or delinquencies, but the trend of the overall loan portfolio.

Even with the large increase in automotive lending in recent years, auto loans still account for only 9% of U.S. household debt, compared with the 74% share garnered by mortgages prior to the collapse of the U.S. housing market. In addition, subprime auto loans represent only 2.5% of overall household debt and lenders have been scaling back these loans over the past year.

Read the full Scotiabank Global Auto Report online at:
http://www.scotiabank.com/ca/en/0,,3112,00.html.

Scotiabank provides clients with in-depth research into the factors shaping the outlook for Canada and the global economy, including macroeconomic developments, currency and capital market trends, commodity and industry performance, as well as monetary, fiscal and public policy issues.

About Scotiabank
Scotiabank is Canada's international bank and a leading financial services provider in North America, Latin America, the Caribbean and Central America, and Asia-Pacific. We are dedicated to helping our 23 million customers become better off through a broad range of advice, products and services, including personal and commercial banking, wealth management and private banking, corporate and investment banking, and capital markets. With a team of more than 88,000 employees and assets of $896 billion (as at October 31, 2016), Scotiabank trades on the Toronto (TSX: BNS) and New York Exchanges (NYSE: BNS). For more information, please visit www.scotiabank.com and follow us on Twitter @ScotiabankViews.

Image Available: http://www.marketwire.com/library/MwGo/2016/12/6/11G124424/Images/Twitter_Global_Auto_Infograpic_Dec_7_EN-8c844c613ffb8a49a2675555ae58196a.jpg

For more information, please contact:
Carlos Gomes
Scotiabank Economics
[phone]
[e-mail]

For media enquiries only:
Sierra Catalfamo
Public, Corporate and Government Affairs
Scotiabank
[phone]
[e-mail]