DBRS Morningstar Releases Commentary on Its European Auto ABS Outlook

DBRS Morningstar released a commentary titled, “European Auto ABS Outlook: Changing Lanes”. European automobile markets are transforming, affecting automotive finance. The automotive market is broadly cyclical and the accelerated conclusion of the most recent automotive cycle in Europe can be mainly attributed to the effect of the Coronavirus Disease (COVID-19). However, other structural drivers have also played their part in changing the auto asset-backed securities (ABS) issuance environment.

At DBRS Morningstar, we consider there to be five separate factors shaping the ABS market including (1) market saturation, (2) the transition to alternatively fuelled vehicles, (3) dealer and manufacturer consolidation, (4) an increase in the demand for and supply of younger used vehicles, and (5) changing financial products offered to customers as the market continues to shift away from ownership to usage.

DBRS Morningstar expects that the combination of these factors and the impact of the coronavirus pandemic will continue to change the European automotive finance environment during the next automotive cycle and, in the short term, finance companies, customers, and dealers will continue to be affected. This will have an impact on the mix of auto ABS issuance and is expected to contribute to an increase in volatility in key performance metrics relevant to auto ABS such as expected default rates, recovery rates, prepayment rates, and residual value exposure.

This commentary provides an overview of the drivers of change while focussing on the growth in younger used vehicles.

Notes:
The commentary is available at www.dbrsmorningstar.com.

For more information, visit www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.

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