MIAMI — Auto ABS losses are on the rise due to the abundance of off-lease vehicles coming back into the market, and that trend is likely to continue into 2020, analysts from Moody’s Investor Service told Auto Finance News.
“So far this year we have bumped up our expected losses for several shelves, including Ally Financial Inc. and Ford Motor Credit Co., for example,” JingJing Nicky Dang, vice president and senior credit officer at Moody’s said. “We pumped up our expectation for losses primarily driven by used-car vehicles because the recoveries are lower, [which in turn] pushed losses higher.”
Often, people tend to think that auto trends such as used-vehicle depreciation only affect subprime issuances, but the deterioration is across the board, she said.
The only way the trend will reverse is if manufacturers start paring back production, analysts from Fitch Ratings told AFN at ABS East. However, there have been few signs that a cut in production is happening. General Motors and Ford Motor Co. have indicated that they will cut back, but others such as Nissan are looking to increase.
“[OEMs] are using leases as a tool to not only employ incentives but to move on popular vehicles,” said John Bella, Fitch’s managing director of structured finance and asset-backed securities. “But that’s just punting the residual value impact down the line.”
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