DBRS Study on Canadian Auto Lease and Loan Securitization: Annual Update

According to a DBRS study published today, Canadian auto securitization transactions continued to perform well in 2012, thanks to relatively benign economic fundamentals – low interest rates and stable employment – which have created a market that is at once competitive for sellers and attractive to buyers. Indeed, the year saw the highest recorded new car sales volume in Canada since 2002, with Canadian consumers purchasing 1,675,675 new vehicles – up 5.7% from 2011. However, the continued rise in household debt drove consumers to search for the lowest monthly payment to keep affordability in check. As a result, long-term loans (60 months or longer) remain the order of the day.

“Canadian consumers continue to meet their auto payment obligations as losses on securitized transactions trend down from the 2008 peak,” says Tim O’Neil, Senior Vice President at DBRS. “But, the risk is still there. Any sudden change in the underlying economic environment that causes an increase in unemployment claims and/or consumer bankruptcies will have a significant impact on loss performance.”

The study examines recent loss performance, particularly the composition trends in the securitized pools rated by DBRS in Canada over the last six years. Mr. O’Neil notes: “Consumers continue to demand longer loan contract terms, used vehicles and trucks over cars, and this is reflected in the securitization market. So far, associated risks have been offset by a strong used vehicle market and consistent underwriting standards, evidenced by weighted-average FICO scores above 740.”