Standard & Poor’s believes that the current positive trends in the U.S. auto sector will continue into 2H12. They expect ABS issuance in auto-related collateral to exceed their $80 billion forecast this year.
U.S. auto-related ABS, which comprises loans, leases and floor plan transactions, volume is currently at $53 billion year-to-date, S&P analysts said, citing data from Bloomberg. They anticipate auto securitizations to continue tracking new/used vehicle sales and lease originations this year.
S&P analysts said that auto sales are rising in 2012 mainly because of pent-up demand after a period of low sales in 2009 and 2010. New vehicle sales increased 13.4% year-to-date through May from the same period a year ago while sales of used vehicles increased 6.2% year-to-date. The full-year forecast is 14 million units, increasing 10% from last year. S&P said that the higher numbers will probably support the continued strong loan originations and auto ABS issuance in the coming months.
Overall, the rating agency said that the U.S. auto sector is outperforming the entire economy and the auto ABS market fundamentals remain robust. Auto sales are gradually recovering to pre-crises levels, collateral performance is getting better, consumer fundamentals and used-car prices are still at healthy levels, and credit spreads are tightening, analysts said.
They added that the auto loan and lease underlying collateral performance continues to be strong, and the trend of upgrades exceeding downgrades will probably continue.
The higher number of upgrades is attributed to the strong used-car recovery values, tighter underwriting standards since late 2008, and the deleveraging of ABS deals as a result of their sequential pay structures and credit enhancement floors.
Meanwhile, analysts reported that the subprime auto sector has seen more competition with new subprime auto finance companies as well as already established firms pushing their origination volumes higher.
However, S&P also pointed to the various significant risks that can potentially harm the consumer fundamentals and increase collateral losses in the sector. These include a slow growing economy, heightened unemployment, and the European sovereign debt crisis.