Issuance of prime auto ABS is falling short of the pace set in 2012, and Wells Fargo says this may be partly explained by the fact that more consumers are opting to lease, rather than buy, new vehicles.
Though April, prime auto ABS issuance stood at $12.6 billion compared with the 2012 full-year total of $45.2 billion. Meanwhile, subprime auto ABS issuance stands at $8.1 billion so far this year and accounts for 13.3% of total consumer ABS issuance.
In research published Monday, analysts at Wells Fargo note that there are simply fewer new car loans available to be securitized. New vehicle sales are increasing, but at a slower rate than they were in 2012. Cumulative new auto sales totaled 4.96 million units through April 2013, up 6.9% from the year-earlier period. However, the April 2012 figure was up 10.3% from 2011.
“Slower growth in sales may reduce the need for securitization as a financing alternative among prime auto lenders,” the analysts said.
“Furthermore, it seems that at least some of the 2012 increase in prime auto ABS issuance came from seasoned loans that had been resting on balance sheets and found their way to the capital markets as auto ABS spreads tightened.”
The analysts also pointed to the increasing popularity of auto leasing as a financing option for consumers looking for a new car or truck. This can be seen in the volume of auto leases securitized this year, $5.5 billion through April versus $12.6 billion for all of 2012.
Also, the market share of auto lease ABS outstanding has also increased to about 18% of total auto ABS outstanding, up from 15.4% at the end of 2011.
And it doesn’t help that auto ABS spreads have widening, making it relatively less attractive compared with other forms of financing available to lenders. Spreads on prime auto ABS were widening from the fourth quarter of 2012 through early April 2013, after a long stretch of spread tightening that started in early 2012. However spreads have more recently reversed course and started to narrow again.