Given the delinquency and loss rates in the subprime auto securitization market, and the level of competition, it’s “surprising” there haven’t been more mergers and acquisitions lately, said Hylton Heard, analyst and senior director of Fitch Ratings’ U.S. ABS group.
“Clearly, if auto sales decline this year, as we expect they will marginally, and if there is any issue on the 2013 to 2015 vintage performance from some of these small names, I could definitely see them getting picked off by some of the bigger lenders,” he said.
There are far more issuers in the subprime ABS market than there were 10 years ago, and Heard expects this will lead to consolidation.
“A lot of [the current lenders] have come into the market in the past couple years,” Timothy McNally, associate director of Fitch’s U.S. ABS group, told AFN. “There are between 23 and 25 at any given time that we track in our index. If you were to compare that to 2007 and 2008, there were around 10 or 12 [subprime] lenders in the market, and sometimes even less depending on the level of securitization.”
When there were fewer players in the space back in 2011 and 2012, Santander Consumer USA Inc. and General Motors Financial Co. — the only two subprime lenders Fitch rates — combined for 85% of the market. Today, they combine to make up just under 50%, McNally said, while the remaining marketshare is comprised of smaller companies including Tidewater Finance Co., Consumer Portfolio Services Inc., and Sierra Auto Finance.