The global semiconductor chip shortage, which has slowed production of new vehicles across the auto industry, should drive consumers to the used-vehicle market and keep prices elevated, a credit positive for auto asset-backed securitizations. The shortage, originally caused by pandemic shutdowns, has been exacerbated by a surge in demand for new technology.
Lease transactions from numerous issuers, such as American Honda Finance Corp., BMW Financial Services, Ford Motor Credit, GM Financial, Hyundai Capital America, Nissan Motor Acceptance Corp., Santander Consumer USA and World Omni Financial are all positioned to benefit from elevated used-vehicle values, according to a report by Moody’s Investors Services.
In a lease securitization, the vehicles’ residual value often represents roughly 50% – 60% of the of the total assets collateralized, Daniela Chun Jayesuria, a senior vice president at Moody’s Investors Services, told Auto Finance News. Simply put, less depreciation on off-lease vehicles increases cash flows for the securitizations as vehicles are offloaded onto the wholesale market.
“The off-lease product is probably a close substitute for new vehicles,” Jayesuria said. “That certified pre-owned, 2- to 3-year-old used-vehicle with low mileage could be an option for someone that would otherwise be looking for a new vehicle.
“That demand increase would help to maintain used-car prices and [push down] depreciation levels,” Jayesuria said.
Lease transactions issued in 2018, 2019 and 2020 are experiencing the largest gains in residual values; BMW Financial Services’ 2018-1 vintage and GM Financial’s 2019-2 vintage are pushing upward of 6% gains on residual values.
Used-vehicle values have been on the rise since bottoming out in March 2020. In fact, the Manheim mid-month index in March came in at a record 175.5, a 23.7% year-over-year increase.
To be fair, the chip shortage should normalize by the second quarter of 2021, Jayesuria said, which should increase supply of new-vehicles and help level out the market. “That still remains to be seen,” she said.
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