DBRS Publishes Commentary on U.K. Auto ABS: Used Car Oversupply Forging New Challenges

DBRS Ratings Limited (DBRS) released the second of two commentaries covering the changing dynamics of the U.K. auto market and its impact on U.K. auto ABS transactions.

An increasingly competitive U.K. auto market and changes in consumer behaviour over the past decade have posed fresh challenges to both captive and non-captive lenders. In the first quarter of 2017, new car sales reached record levels, largely driven by the increasing popularity of personal contract purchase (PCP) agreements. However, a potential oversupply of used vehicles may be placing downward pressure on the used car market, exposing lenders to potentially higher than anticipated future losses.

DBRS has analysed the changing dynamics of the U.K. auto market and has observed the following:

• Increasing new car sales volumes are putting pressure on used car prices;
• DBRS-rated deals continue to contain high new car financings, diverging from the observed market trend;
• Manufacturers are addressing used car price pressure by introducing scrappage schemes whilst their captive auto lenders promote used car financing offers that include PCP agreements in lieu of traditional conditional sale agreements.

Further details can be found in both reports covering the U.K. auto ABS market.

Note:
Information regarding DBRS ratings, including definitions, policies and methodologies, is available on www.dbrs.com.

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