What's New in the Auto Lending Landscape?

The automotive industry's growth is slowly increasing that reduced due to COVID-19 because of the increasing demand for recent trends.

FREMONT, CA: The U.S. automotive sector and its related credit industry will likely continue to show components of a have and have not split due to a COVID-19 recession that some say is going through a distinct recovery moving into 2021. It is called a K-shaped recovery by the geometrically inclined, which creates two sub-economies, one in which people retain their income and are likely to progress life as expected, and the other where income has reduced or where the primary earner is out of work and receives government assistance or unemployment benefits.

New car sales bounced back somewhat in 2020, and that recovery will continue to affect the image of sales for the next few years, impacting most of the industry. Some trends that have been at work, such as lower oil prices in certain parts of the country and low loan rates that are projected to continue for some time by the Federal Reserve, will continue to affect car sales and borrowing into and probably beyond 2021.

New technologies, especially the ongoing growth of electric cars, impact the picture ahead, and there are signs that the upcoming Biden administration's policies will have different positive effects on the automotive industry. A reprise of an Obama-era initiative called cash for clunkers, intended to buy out ownership of older inefficient models with revenue to be spent on new models, is one concept that has been proposed. Furthermore, in the absence of a new federal assistance package, the effect of expiring COVID unemployment services at the end of the year and the slowdown of credit relief programs remains a question mark.

Outlook for Auto Sales in 2021 in the U.S. More Upbeat Than Formerly.

Based on expectations for an expanding economy in 2021, Fitch Ratings forecasts an improving U.S. auto industry outlook. The rating service predicts a total of 15.6 million light-vehicle sales in 2021, up nearly 10 percent from the expected total of 14.2 million in 2020. The estimated level for 2021 is approximately 8 percent off the level of 2019, and the company does not expect revenues to rebound to that level until 2022 at the earliest.

Even the scrapping rate, which is the industry term for vehicles withdrawn from service and registration, decreased at one stage in 2020, is returning to normal levels. As a result of immigration and further population growth, this factor, and the projected rise in the number of licensed drivers, would boost car demand. The low-interest rates and incentive schemes for suppliers and dealers, with subsequent decreases in monthly payments, also play a role. The effect of the K-shaped restoration is also being seen. New car buyers seem at all times to be of a higher economic stratum.

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