MIAMI — Truck loans and leases could impact recovery losses for lenders if those assets depreciate rapidly, John Bella, a managing director at Fitch Ratings Inc., told Auto Finance News.
For years, lenders have accumulated a larger concentration of SUV and truck assets in their portfolios as low gas prices kept consumers in larger vehicles and dominated sales. However, now there are signs of truck value depreciation, even as car segments continue to decline.
“The sad story is that the recovery picture is hard to handicap, and it’s only going to get worse or stay negative in the headlines,” Bella said. “A lot of portfolios have moved to having a much heavier SUV and truck concentration. If there is a shift in that portfolio, then you’re going to have further negative impact on higher-dollar value vehicles, so you’ll see bigger price reductions.”
Fitch is anticipating depreciation in both segments for the remainder of the year. Black Book reported that the overall truck segment — which includes pickups, SUVs, and vans — experienced value declines of 0.10% last week and averaged 0.19% depreciation per week over the previous four weeks. Although securitization structures were found to be resilient, a macroeconomic event — such as a geopolitical shift that impacts gas prices — could reduce the returns on a high concentration of assets, Bella said.
“The direct impact is lower recoveries could translate to higher losses,” Kruti Muni, an associate managing director at Moody’s Investors Service, said during a panel at ABS East 2017. “At the end of last year, we saw issuers adjust their residual value pricing, so that has come down reflecting the lower used-car prices. You still have strong borrowers, but this impacts the severity.”
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