In Decline in Auto ABS Volume, Evidence of a Shifting Landscape

July 27, 2016

Reading Time: 2 mins read

The volume of automotive asset-backed securitization — a key source of auto finance liquidity — through May this year is off 12% compared with the same period in 2015, according to Deutsche Bank.

That’s not to say auto ABS has turned in consistent volumes in recent years. Last year, total auto ABS fell 1% to $65.8 billion. Through the first five months of 2016, auto ABS volume totaled $34.1 billion, according to Deutsche Bank data released earlier this month. In 2014, auto ABS volume increased 12%.

But there are more important trends within the numbers.

A look at the data over the last few years will reveal a reality that may have been lost on some in the industry: The auto ABS market is increasingly skewing to nonprime loans. Last year, for the first time since at least 2006, nonprime issuance hit the 40% threshold, up from 33% in 2014. The nonprime share of issuance fell to as low as 6% in 2009 (for obvious reasons). So far this year, nonprime issuance accounts for 41% of the auto ABS total. There’s no telling where that share will end the year, but the overall shift to nonprime on the auto securitization market since 2012 is noteworthy.

Overall, the auto ABS market through May has been shaky, to say the least. Here is Deutsche Bank’s commentary on the market:

Nearly $52 billion of auto ABS has priced year to date, a decrease of 12% year over year. Issuance of deals backed by prime auto loans is down 8% year over year, with more than $20 billion pricing year to date. [Nonprime] auto ABS issuance totals $14 billion year to date, a decrease of 9% year-over-year. Issuance of ABS backed by retail lease and dealer floorplan receivables is down as well, with year-over-year declines of 33% and 38%, respectively. Rental car ABS issuance is up 129% year over year, for a total of $2.8 billion.

Rental car ABS issuance aside, the auto ABS market has faced a choppy 2016. As many an investor knows, past performance is no guarantee of future returns — but unlike in previous years, the auto ABS market deserves particular monitoring as the second half of 2016 plays out.