LAS VEGAS — Economists and analysts anticipate a downturn in the next year or so, and auto lenders are taking note. Yet, in a strong U.S. economy with low unemployment and high consumer confidence levels, several auto lender executives say much of the hype is premature.
Mark O'Donovan, CEO of Chase Auto, said there's dissonance between what's reported in the media and what he's seeing in the company's auto portfolio.
"It feels like since the Great Recession, we've been — not me personally, but a lot of people — trying to talk ourselves into a recession," O'Donovan said during the Auto Finance Summit here. "But I think the reality is ... the data doesn't really support that, at least from a perspective of anything of gravity."
While U.S. new-vehicle sales are down 1.6 percent this year, analysts say the market is still on track to hit 17 million or more for the fifth straight year, an unprecedented streak. Still, higher fleet sales have offset weaker retail demand, a key driver of F&I products.
The U.S. Federal Reserve is expected to further reduce interest rates Wednesday in a bid to keep the current economic expansion, the longest on record, going amid signs of slowing manufacturing output and ongoing trade friction.
Even if lenders believe concerns of automotive downturn are overblown, ensuring vehicles remain affordable for consumers remains paramount.
"Term [lengths], negative equity — that's all stuff that I think we all as an industry need to be very aware of," O'Donovan said.
Chase maintains private-label, indirect lending agreements with Subaru, Mazda, Jaguar Land Rover, Maserati and Aston Martin. Chase also has an agreement with Enterprise Car Sales.
Although interest rates have risen and affordability concerns are top of mind, Kyle Birch, chief operating officer for North America at GM Financial, said the automotive financing environment remains stable.
"Every time I come here, we're talking year-over-year about how credit is going to get worse and deteriorate. But surprisingly, it continues to go in the right direction," Birch said.
Not all lenders share the same viewpoint. Charles Bradley, CEO of Consumer Portfolio Services, a subprime auto lender, said an economic downturn appears unavoidable.
"Winter is coming. There is going to be a recession. If you were a betting person here in Vegas, it wouldn't be a bad bet to take next year, but probably the year after," he said. "From the health of our industry, though, you don't see it."
Regardless of the economic landscape, captive finance companies will focus on supporting the dealer network, Birch said. And non-captive lenders will also continue to support dealerships, he added. But financial institutions that aren't as entrenched in automotive lending may pull back during rougher periods of the economic cycle, whereas captive lenders have other priorities.
"We have to be there," Birch said, "whether winter comes next quarter, next year or five years from now."