The U.K. government's proposed £2.5 billion ($3.5 billion) support package for the U.K. auto industry is unlikely to have any impact on the ratings of outstanding auto-related ABS, according to analysts at Fitch Ratings.
"The U.K. government's intervention outlined yesterday appears to support the supply of new vehicles, but fails to address falling demand for new cars," said Philip Walsh, managing director of the European structured finance group. "We do not expect this to revitalize the sales of new vehicles in the U.K. due to the lack of support for consumers purchasing new cars and direct assistance for vehicle manufacturers' financing arms."
Auto-financing originations have declined as consumers face a more difficult economic environment and auto financiers experience increased difficulty securitizing their originations.
Analysts at the agency said that the support package does not stimulate an increase in demand for new vehicles and lacks the direct intervention to assist with the sales of vehicles as has been seen in other parts of Europe where schemes designed to provide support to the auto industry have also been launched to cope with the falling demand for new vehicles.
German and French support schemes offer cash reimbursements to individuals purchasing new or nearly-new vehicles and trading-in vehicles over a certain age, or under a given fuel efficiency. The Italian government is also supposedly preparing a scheme to provide guarantees to auto financing companies in order to stimulate auto finance lending to consumers.
"These support packages are more closely aligned with providing a boost to the origination of new auto financing which should help to provide some respite to the declining trend in new car registrations observed across Europe through 2008," Walsh said.
German and French manufacturers have already reported increases in demand since these packages have been announced. Fitch noted there could be an impact on used car prices as a result of these schemes (due to an increasing stock of used vehicles), which could place further pressure on residual value risk for certain transactions.
However, the vehicles targeted for these incentive schemes are typically older than those which are included in auto ABS transactions.
