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“Government support through payment moratoriums and direct transfers have helped auto loan debtors to weather the crisis while financing arms of auto makers have benefitted from low credit losses,” says Werner Stäblein, analyst at Scope.

Credit loss rates at European auto makers’ financing arms differed very little in 2020 compared with the low loss rates reported before the Covid-19 crisis. According to available data, there only a minimal uptick (+9bp) of credit losses in 2020 reported by the in-house finance arm of Daimler AG (A/Stable) and unchanged credit losses reported by Volkswagen AG. BMW AG does not disclose credit losses intra-year. An identical picture can be observed at FCA Bank Spa (A/Stable), a 50/50 joint venture of Fiat Chrysler Automobiles N.V. and French lender Crédit Agricole SA, where credit losses ticked up 5bp.

“Credit risk can intensify quickly when the economic environment worsens,” says Stäblein. For instance, Daimler’s credit loss ratio was nearly three times higher during the global financial crisis in 2009 at 0.84% than it was during 2019 (credit loss ratio was 0.26% in 2019). The same is true for FCA Bank Spa.

“Auto credit losses remained surprisingly stable this time around, despite the worsening economic picture globally following the coronavirus crisis,” says Stäblein. “While consumers have refrained from big-ticket purchases such as new cars in 2020, with global sales of global light vehicles down about 15% year on year, almost all consumers that have signed up for auto financing before 2020 have honoured their contractual payment obligations,” he says.

“The surprisingly low credit loss ratios in 2020 lead us to conclude that the economic knock-on effects of the pandemic have been mitigated well enough through fiscal stimulus such as short-time work schemes and liquidity/loan assistance programs for credit risks on auto loans not to materialise,” he says. Unemployment rates have ticked up in Europe, but the rise in unemployment in 2020 was only half as bad as the jump in unemployment during the global financial crisis in 2009.

The pandemic has changed commuting patterns and has led to more auto commuting versus public transportation, in turn leading to increased demand for (used) vehicles. As a result, market prices (residual values) of used cars have partly moved above the levels observed before the coronavirus pandemic. Higher residual values for used vehicles also reflected customer preferences for cheaper vehicles (used versus new).

“Overall, the credit risks of car financiers’ benefitted primarily from government support schemes while the pandemic’s changes in commuting patterns created a pricing environment in the used car market for repossessed vehicles to be remarketed at favourable prices, in turn positively supporting low credit loss ratios,” says Stäblein.