September 4, 2017
www.usedcarnews.com
Finance Stable as Wholesale Prices Drop
Photo courtesy of Manheim Riverside FULL LANES: Dealers bid on cars at Manheim Riverside. The supply of off-lease vehicles continues to grow in the lanes at the nation’s auto auctions, causing wholesale prices to soften.
By Ted Craig
Rush - Dated Material
The auto inance market looks like it will continue its strong performance despite several challenges. A recent report from Kroll Bond Rating Agency states that despite rising losses in auto inance issuances, risks remain well contained and investors are well protected. The Kroll report inds much of the deterioration in auto loan assetbacked securities can be attributed to a loosening of credit standards. However, the agency does add that there has been incremental deterioration on an issuer-by-issuer basis due to softening used-car prices.
Westlake Financial Services recently showed just how strong the market for auto ABS remains. The irm issued an $800 million asset-backed securitization backed by approximately $860 million of automotive contracts, the largest ABS transaction in the company’s history. It is the latest of Westlake’s 14 securitizations, which have been comprised of approximately $5.86 billion in cumulative inancing. This ABS tops the March issuance of $700 million, the previous record holder. “Our credit performance remains strong in spite of competitive and
economic pressures, which attracts investors to our portfolio and enables us to continually increase our securitization amount,” said Westlake CEO Paul Kerwin. Westlake’s latest securitization has an expected annualized cost of 2.65 percent, including the initial purchaser’s fees, which is in line with prior ABS deals, despite higher benchmark interest rates. Kroll does warn that used car prices remain vulnerable to several factors. These factors include higher incentives and an increasing supply of of-lease vehicles. J.D. Power Valuation Services saw these two factors increase in July.
The company reports that incentive spending increased for the 28th month in a row in July with its new Used Vehicle Price Index slipping by 0.7 percent to 110.4. “The market is behaving exactly the way we forecasted,” said David Paris, executive analyst at J.D. Power Valuation Services. “For the year, we believe used prices will decline by 6.5 percent, which is 2.5 points worse than 2016’s 4 percent loss.” KAR Auction Services chief economist Tom Kontos points out that the market is softening as expected once prices are held constant for sale type, model-year age, mileage, and model class segment
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