Issuance in the auto ABS sector year-to-date was at $34.4 billion at the end of July 2011.

This volume represented 54% of the total issuance in consumer ABS this year, which favorably compares with the $28.8 billion issued at the same period in 2010, according to a report from Wells Fargo analysts released today. 

"The auto ABS sector has been a source of stability, as financial markets in general have been buffeted by significant risks," analysts said. "Strong credit performance and robust structures continue to serve investors well in the face of increased uncertainty, in our opinion."

The rise in ABS issuance can be partly because of the increased vehicle sales, Wells Fargo analysts said. The sales rate, they said, is currently close to the low end of the 12 million-13 million unit range that analysts had expected for 2011. Slow economic and personal income growth, analysts said, will probably prevent sales from rising much more.

Analysts cited the Manheim Used Vehicle Index that stayed at historically high levels, increasing 6% year-over-year. Index gains, analysts said, can mostly be because of the performance of compact car prices, which are up 19.7% from last year. Meanwhile, less fuel-efficient SUV prices have dipped 7.0% over the same period, Wells Fargo analysts noted.

Meanwhile, they said that demand has been strong for 'AAA' prime auto ABS, adding that spreads have tightened steadily since late April, inspite of the significant volatility in the financial markets. Spreads on subordinated bonds, they said, are 40 basis points to 45 basis points wider versus where they were in late April. These spread movements signify the risk aversion of many fixed-income buyers as well as a flight to quality, analysts said. 

The latter part of the year, according to Standard & Poor's analysts, might not look as good.

According to S&P analysts in a report released this morning, weak auto sales could limit auto ABS issuance later this year. Auto firms reported 12.2 million (seasonally adjusted annual rate) vehicle sales in July, up from 11.4 million in June, although this is the third consecutive month of below 12.5 million numbers after averaging above 13 million in the first quarter.

Chrysler Financial, General Motors Co., and Ford Motor Co. led the July rise, increasing 19.4%, 7.6%, and 4.1%, respectively, over last June.

However, American Honda Motor Co. and Toyota Motor Corp. sales remain disappointing, dipping 28.4% and 22.7%, respectively. Supply disruptions from the Japan earthquake will also probably continue to dent production.


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