Captives at ABS East Confident in Used-Vehicle Values

(L-R): Angela Ulum, partner, Mayer Brown LLP; Stefan Glebke, president, BMW US Capital; Jamie Feehely, managing director securitization, National Bank; Steve Hetrick, treasurer, NMAC; Amy Sze, executive director, JP Morgan Securities; Amy Martin, senior director, S&P Global Ratings

MIAMI — Captives are confident that the used-car market will remain stable despite the uptick in consumer demand toward SUVs and trucks, panelist discussed during ABS East 2018 on Monday.

“We don’t expect any crash,” Stefan Glebke, president of BMW US Captial, said during the panel, noting that the captive ensures supply is there as the consumer demand persists. “So far, we have nothing of concern when it comes to the [demand] switch.”

While overall vehicle values are currently at a historical high, sedans are lagging a bit. Adjusted wholesale prices for pickups rose nearly 9.8% in 2017, while compact car values rose only 3% as overall market prices rose roughly 6%, according to Cox Automotive’s 2018 Used Car Market report.

Despite some pullback in sedans from OEMs — such as Ford, Fiat Chrysler Automobiles, and General Motors — Nissan Motors is fully committed to the sedan market despite one of NMAC’s primary drivers of residual performance coming from consumer demand moving away from sedans to CUV, SUV, and truck segments.

“We had a weakening in sedans as SUVs came into favor but now they are performing better, not as well as the SUVs and trucks, but we are still very committed to the sedan market,” said NMAC’s Treasurer Steve Hetrick. Nissan’s netted ALG value is +0.64% for FY18, compared with -1.14% for FY17.

Toyota Financial Services is also confident in the strength of the used-vehicle market, Adam Stam, director of secured funding at TFS, told AFN. “We’ve seen [residual values] hold up surprisingly well, so we’re optimistic there won’t be a big shock to the system.”

Captives may be confident, but rating agencies do have concerns as residual values do come with risk in auto ABS transactions, said Amy Martin, senior director for S&P Global Ratings.

“Certainly there’s a lot of risks because potentially 100% of these vehicles can come back into the trust and the finance company is going to need to liquidate those vehicles,” Martin said. “But there are some ways the residual risks are mitigated.”

One of the main ways to mitigate that risk is ALG forecasting, Martin noted. “When we rate an auto lease securitization at a AAA level we take 26% off of that ALG forecast, and we are assuming it for the life of the deal, not some short-term period,” she said.

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