S&P Predicts Slower ABS Growth Amid Vehicle Sales Decline

The auto loan securitization market is expected to grow to $76 billion this year, compared with $72.5 billion in 2017, which represents a slowdown that tracks with declining auto sales, according to a report from S&P Global Ratings.

New-vehicle sales ticked down to 17 million units in 2017, compared with 17.4 million in the year prior. However, favorable investor demand and low issuance costs, which supported auto loan ABS growth in 2017, offset the slowdown in auto sales last year. Because light-vehicle sales are expected to weaken further in 2018 to 16.9 million units, auto loan ABS is likely to experience “only modest growth” of 5%, according to the report.

The report did not provide a year over year growth rate comparison. Growth is expected to come mostly from independent finance companies benefiting from the pullback of larger institutions.

“Several of the captive finance entities are working with independent finance companies to buy their dealers’ below-prime auto loans in flow-through programs,” the report said. “This trend is gaining momentum, and we’re likely to see more of these loans enter the ABS market.”

Meanwhile, auto lease ABS volume in 2018 will range between $15 billion and $17 billion, a possible 10% increase over last year’s volume. However, S&P believes it’s more likely that lease securitization volume remains flat.