Is Commercial Paper Making a Comeback in Auto Finance?

When the credit crisis hit in 2008, the commercial paper market went with it. At the market’s height, in July 2007, there was nearly $2.2 trillion of commercial paper outstanding. Just two years later, CP outstandings had fallen to about $1.1 trillion. In many ways, CP was the “poster child” financing vehicle for the credit crisis.

But there is evidence that commercial paper appears to be making a coming back in auto finance. 

The overall CP market continues to bounce along, as evidenced by the graph below.

However, there are particular issuers in auto finance that are returning to the CP market with force. One of note is Nissan Motor Acceptance Corp. From fiscal years 2008 to 2010, NMAC found an average of $4.53 billion, or 14.3% of its annual funding, on the asset-backed commercial paper market. But in FY2011, the bottom fell out of Nissan’s ABCP funding. (NMAC’s FY2011 ran from March 2011 to March 2012.) The company raised but $800 million on the market, or only 2.9% of its total funding that year. NMAC, instead, secured more funds that year from bank loans, group loans, and public asset-backed securitizations.

FY 2012 proved to be a much different story for NMAC. The company was able to secure $4.8 billion on the ABCP market, more of that type of funding than the company found through the recession years.

There is evidence that other lenders are increasingly finding their way to the CP market. Ford Motor Credit Co., for example,  is also securing more of its funding via the commercial paper market, although it is not relying as heavily on CP as NMAC. American Honda Finance Corp. is more similar to NMAC in CP funding, and likewise saw a more substantial share of its funds coming from commercial paper in 2012. Still, NMAC raised more funds via CP in FY2012 (14.6% of total funding) than Honda Finance (9%).

Is this yet another sign that the good times are back for auto finance? Perhaps. It can be argued that a more diverse funding menu benefits the industry and consumers, because it provides more financial flexibility to lenders.