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Europe, the Middle East and Africa: Stable Performance For Auto Loan ABS

Global Arab Network - - George Haddad

Wednesday, 10 February 2010 17:37

The performance of the auto loan asset-backed securities (ABS) market in Europe, the Middle East and Africa (EMEA) continued to demonstrate a stable performance in December 2009, according to the latest indices published by Moody's Investors Service. Moody's 60+ days delinquency trend remained unchanged at 1.2% from one month previously, while the weighted-average cumulative losses trend maintained a flat trend line and ended at 0.7%, which constitutes an increase of 0.2% during the past year. Moody's average constant prepayment rate (CPR) trend continued its slightly decreasing trend and stood at 10.6% in December 2009. At present, two transactions have drawn on their reserve funds and no transaction in this market has recorded a principal deficiency.

"The major auto loan ABS markets, such as Germany, have remained relatively stable and so far, performance has not been affected by any great degree by the weak economy," says Yuezhen Wang, a Moody's Senior Associate. "However, a rising level of unemployment, fragile macro-economic conditions and an oversupply of used cars may affect delinquencies and recoveries in 2010."

Moody's notes that the performance of balloon loans (often linked to residual value guarantees from dealers) could be negatively affected if manufacturers fail to provide comprehensive support to dealers that experience financial difficulties in 2010. In particular, dealers that mainly sell small cars and profited from the car scrappage schemes in 2009 will likely experience financial pressure this year due to the withdrawal of car scrappage schemes introduced by European governments and the expected reduction in new car sales in 2010.

The Eurozone economy is recovering, but the outlook remains highly uncertain. Moody's Economy.com expects gross domestic product (GDP) to grow by 1.2% in 2010 and unemployment is expected to continue to rise and reach 10.3% in 2010. The prospects of fiscal tightening will place pressure on consumer confidence and domestic demand will remain subdued. Inflationary pressures remain weak even though consumer prices have started to grow again in year-ago terms.

Moody's outlook for German, Portuguese and South African auto loan ABS remains negative (see EMEA ABS & RMBS: 2009 Review & 2010 Outlook, January 2010).

As of December 2009, the total outstanding pool balance in the EMEA auto loan ABS market accounted for EUR22.9 billion, which constitutes a decline of 17% over the past year. Approximately 75% of the outstanding transaction volume in this market is collateralised by auto loans that are originated by captive originators. The most important market for auto loan ABS in EMEA is Germany, which represents more than 60% of the outstanding volume, followed by France and Italy, which each account for approximately 12%, and less representative markets such as Spain, CIS, Portugal, South Africa and the UK.

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