Dealer floorplan ABS continues to gain traction as issuance volumes are boosted by rising vehicle sales and the refinancing of maturing transactions.
But buyers beware. Fitch Ratings said in a report today that although these deals benefit from ample credit protection and are protected by concentration limits and performance triggers that insulate them from dealer losses, the structures are still exposed to macro credit risks.
Standard & Poor’s said last week in a report that based on the issuance pace set so far this year, U.S. dealer floorplan ABS will likely exceed $14 billion for all of 2012. Last week’s GE’s April 25 deal brought year to date issuance to $5.5 billion.
Fitch said that events such as higher tax rates, national fiscal events and global geopolitical risks, that could impact the auto industry and these deal in 2013.
“If growth in the broader economy becomes stagnant or backtracks altogether, auto sales would decline,” said director Sean Egeran in a press release today. “This in turn could put a crimp into dealer floorplan asset performance through lower monthly payment rates, higher inventory agings and, ultimately, possible trust level losses.”
Another possible risk factor is a decline in consumer credit availability and over-leveraged dealers. According to the report, further expansion of dealership groups in 2013 could lead to greater competition. For dealers, this can result in “an unchecked rise in dealer expenses” as well as ‘overdealering’” which happens “when too many dealers chase a small piece of the sales/profits pie resulting in lower sales and profits per store.”
As of April 14, Fitch rates 26 outstanding dealer floorplan ABS transactions totaling $21.6 billion issued from six auto-related ABS trusts, and one diversified equipment ABS trust.