The manual does a poor job of indicating how it all works. It does state that, in Auto mode, PCM and analog signals would be played in Stereo. But, the issue with the Denon and other makes is that when a DD signal is detected, Surround processing kicks in regardless of the channels in the DD track. TVs set to output Dolby Digital will have an issue with Auto mode because everything coming out of it is some flavor of DD and will trigger the Surround up mixer. If it is a two channel track, one is forced to select Stereo mode. Unfortunately, switching the output of the TV audio to PCM results in everything being down converted and coming out in two channel PCM and multichannel signals are lost. There is just no getting around it unless one chooses Direct mode, BUT, this will rob you of the use of your sub with two channel tracks as bass management is disabled and you will only receive the two channel information in the two front speakers.
For those who do not want to keep tapping a button to change a mode when the channel input changes, the Apple TV 4K is an option. I give Apple a hard time for not having a bitstream option for everything and converting everything to PCM but there is a method to their madness. Apple uses Dolby MAT for Dolby Atmos tracks. The track is converted to multi channel PCM and the metadata stays intact and the track is flagged as Dolby. The Dolby Surround up mixer then configures it for setups of less than 7.1.2. So, in a 3.1 setup, the receiver would display Atmos 3.1. Everything other than Dolby Atmos tracks on the Apple TV 4K will come in as multi channel or two channel PCM. You can turn off Atmos and also convert everything to lossy DD 5.1 but that would be a mistake.
To keep from having to change modes as the signal changes for anybody using an Apple TV 4K, there are a couple of things to do first. While in the Main menu, one should change the sound mode to Stereo. Then, select a multi channel stream that is NOT an Atmos track. Anything labeled 5.1 should do but beware of tracks from Disney+ as many tracks labeled 5.1 are actually Atmos. Once the track is playing, tap the Movie button until MULTI CHANNEL IN is displayed. Stop and leave it there. Now, when you go back to the main menu, it will change the mode back to Stereo mode and any two channel track played will be in Stereo mode as well. Go play an Atmos track and the mode will change automatically to Atmos/PCM and the Dolby light will come on. Since the Dolby light will not come on for anything other than Atmos tracks, the Dolby Surround up mixer will not kick in and screw things up for converted multi channel PCM and two channel PCM tracks and one will retain use of the sub instead of switching to DIRECT mode and losing it on two channel tracks.
These instructions may possibly work for anybody using an XBOX Series X as well as it also uses Dolby MAT like the Apple TV 4K. I don't know of any TV that does so and one will have to deal with the Dolby Surround up mixer for Dolby output or deal with two channel PCM when converting audio using most TVs. Older Samsung TV owners can also select DTS Neo 2:5 output and convert ALL audio to DTS 5.1 and send it out that way. I'm one who likes to play with sound modes and signals constantly but some prefer a "set it and forget it" system. Dolby output of streaming apps can give these folks a headache when Dolby Surround kicks in. I'm gonna' lay this one on Dolby and suggest firmware updates for the up mixer. Maybe they can try and deal with the audio bleed of lousy DD 2.0 tracks as well.