The loan performance on three Chrysler asset-backed securitization deals issued since the beginning of 2007 is worse than expected, according to a report released yesterday afternoon by Standard & Poor’s.
Deals issued by Ford Credit and GMAC are within their performance expectations, according to the rating agency.
Funding and liquidity issues are expected to remain a problem for the captives into 2009. Without getting into specifics, S&P notes that the captives have increased their cash levels, but whether the captives have enough cash to weather the crisis remains to be seen.
There are several issues that are rarely, if ever, discussed by S&P or any other “NEWS” outlet. All captives have seen a decline in their portfolio performance. Three of the primary reasons stem from (1) layoffs, (2) decreased vehicle values and (3) high gas prices. The current vehicle value vs. projected residual value on leases have caused a huge problem for all of the domestic manufacturers. Combine that with people with “perfect” credit letting their cars go back, due to decreased income, layoffs, high gas prices etc.; and no one is safe from the economic problems that we now face.
I think one of the other issues affecting Chrysler securitizations is that its loans were underwritten for terms roughly 6 to 10 months longer than Ford’s or GM’s.
I certainly prefer to see financing subventions rather than rebates. Rebates seem to cheapen a brand more than subventions. Rebates certainly impact resale values to a greater extent. Zero percent is a strong incentive to buy but it is no substitute for short term leasing, especially in the case of luxury and near luxury brands.
It seems to me that shortening the term is a critical component of what an OEM should be trying to accomplish. And with a lease, the lender gets to hold title and take depreciation. And leases still burnish a brand rather then tarnish. I wonder if zero percent is easier to accomplish than leasing in today’s credit environment?