European banks and vehicle manufacturers are increasingly funding auto lending through the securitization market, according to Standard & Poor's report.
After a sharp reduction in securitization issuance in 2008 and 2009; in 2012 auto ABS accounted for a quarter of investor-placed securitization issuance in Europe.
Germany accounts for 40% of European auto ABS collateral, with issuers in Italy, France, and the U.K. originating most of the remainder. Volkswagen and Renault's financing arms have originated more than half of the assets backing auto ABS transactions that S&P rates.
Strong collateral performance and rapid structural amortization mean there have been relatively few auto ABS downgrades in recent years, and defaults have remained scarce.
"Despite some macroeconomic deterioration over the recent financial downturn, European auto ABS collateral performance has generally remained resilient,” said credit analyst Mark Boyce. “However, we have observed substantial regional variation in collateral quality. Severe arrears in Spain and Portugal are well above the European average in our index, while assets in Germany, France, Italy, and the U.K. generally exhibit lower arrears.”
But Boyce said that Auto ABS will be limited by the shrinking European car market that will likely rule out any sharp uptick in volumes this year.