Credit risk comes from financing new customers
The tight supply of vehicles and low cost of financing contributed to spiking demand in car sales. AutoNation reported in February 2022 that a significant portion of cars arriving at dealerships is pre-sold. As car sales grew, levels of auto debt increased to $1.37 trillion in 2020, according to Experian. While auto loan interest rates have increased with its demand, interest payment on other loans will increase for consumers given a likely increase in benchmark rates. This could make financing new cars more difficult for consumers and increase the risk of defaulting on auto loan payments.
M&A|Discontinued ActivityIn response to volatile demand in the wake of the first COVID-19 surge, the company undertook a comprehensive cost reduction program, aimed at shoring up labor and supply costs.
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