December 6, 2020

German auto lenders under scrutiny as crisis hits car values, report says

FRANKFURT — Germany’s car finance companies are facing increased scrutiny from the country’s main financial watchdog as the coronavirus crisis reduces the value of the vehicles used as collateral for their loans.

Bafin has stepped up how frequently the country’s car leasing and auto finance companies must report liquidity and capital metrics, according to people familiar with the matter.

Scrutiny of the lenders is now the closest since at least the financial crisis more than a decade ago, the people said, asking not to be identified discussing private information.

A Bafin spokesman declined to comment.

Lockdowns to combat the spread of the coronavirus have resulted in a collapse of car resale values and increased financial stress for many borrowers, a combination that could force increased provisions and writedowns at auto lenders. The companies generally are not subject to much scrutiny because their loans are usually backed by the cars that are purchased with them.

“COVID-19 will certainly present new challenges in the areas of residual value and credit risks, which will probably cause higher risk provisioning,” Volkswagen Group Chief Financial Officer Frank Witter told analysts on Apr. 29.

VW’s financial services division has always pursued “a conservative approach” to calculate risks and the automaker is “monitoring the situation very carefully,” Witter said.

Registrations slump
VW’s various financial services units had almost 224 billion euros ($243 billion) in assets at the end of last year and 16,571 employees, of which 7,414 were in Germany. That makes the car company one of the larger lenders based in the country.

New-car registrations in Germany plummeted 61 percent in April after a 38 percent decline in March. The country’s economy will probably shrink by 6.5 percent this year, the European Commission has forecast.

The finance arms of U.S. automakers including General Motors and Ford Motor may face multi-billion-dollar losses linked to the dramatic drop in used-vehicle prices, JPMorgan Chase & Co. analysts have said.

A closely watched U.S. valuation index of used cars dropped by 11.3 percent in April, the steepest decline on record.