DBRS Comments on the Impact of Brexit on U.K. Auto ABS Ratings
AutoDBRS Ratings Limited (DBRS) has today published a commentary entitled “UK Auto ABS Ratings Robust Despite Brexit Challenges.” The impact of Brexit has many far-reaching implications across the UK, and this brief report explores the impact it could have on UK Auto ABS transactions. DBRS expects a continued softening in demand for new vehicles, driven by an increase in supply and uncertainty surrounding Brexit. From an auto ABS perspective, this could have several implications as outlined below:
(1) A reduction in demand for new cars could lead to customers holding their vehicles to the maturity of the underlying finance contract. This would reduce early settlement rates and potentially expose the transaction to increased credit losses through either non-payment or voluntary termination.
(2) Manufacturer initiatives to stimulate new car sales could lead to downward pressure on residual values. However, this could potentially be offset by an increase in demand for used car purchases and new vehicle price increases.
(3) As observed in 2008/2009, residual value volatility could occur within specific vehicle subsets as customer demand shifts from luxury to more practical vehicles (i.e., small car pricing would remain resilient, while premium vehicles are subject to downward price pressure). Specific vehicle pressure may also arise because of regulatory changes.
(4) Subsequent movements in vehicle pricings may expose transactions to a greater level of voluntary termination risk under agreements regulated by the Consumer Credit Act.
DBRS does not envisage rating actions based on the above and aims to provide further background within the commentary.
A copy of this commentary is available by contacting us at info@dbrs.com.
For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com