Strong Canadian Car Sales May Push Lenders to U.S. ABS Market

© Can Stock Photo / daoleduc

With Canadian new-vehicle sales rising, more banks and captives may be encouraged to seek funding in the U.S. ABS market to acquire more liquidity, according to a report from S&P.

Auto sales in Canada made up 27% of the countries total retail volume in 2017 and it was mostly spurred by new-vehicles, according to the report. Nearly 81% of auto sales in the country last year were new — supporting a record 2 million vehicles sold.

The growth is due in part to the availability of financing, S&P noted. “The re-emergence of auto captives, which has accelerated the availability of auto
leases, has been driving strong Canadian auto sales over the past few years.”

Meanwhile, the Bank of Nova Scotia (Scotiabank) and Bank of Montreal (BMO), which have both established auto loan ABS programs within the past two years.

“Both programs have been well-received in the U.S. auto ABS market,” according to the report. “They have offered the banks relatively cost-effective funding levels, which may encourage other Canadian banks with established auto loan lending programs to enter the market.”

 

Several Canadian auto captive finance companies, including those of Ford Motor Co., Daimler/Mercedes-Benz, BMW, Nissan, and General Motors, have issued auto ABS transactions in both the U.S. and Canadian markets in recent years. Additionally, Hyundai Capital America recently added the Canadian market to Chief Risk Officer Marcelo Bruti’s list of responsibilities in a sign of increased interest, Auto Finance News has learned.

However, the market does face headwinds including competitive tax rates and interest rate hikes, according to a report from DBRS.

“Decline in consumer spending and new business investment may worsen as the country’s longstanding competitive advantage in corporate taxes has been reversed following U.S. tax reform, which saw the corporate tax rate drop to 21% from 35%,” according to a recent report from DBRS. “The stress on Canadian consumers from the decline in Canadian competitiveness is likely to be accelerated with recent interest rate hikes (two in 2017 and one in January 2018) as well as new mortgage rules for consumers to consider.”

 

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