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Cooling in European car sales pose risks for auto finance market

Publication Date: 08 May 2019 - By ReachX Team By ReachX Team
Actionable
Differentiated

Equity Fundamental Equity EU ex-UK UK Financial Services Automotive

Faltering new car sales in Europe are credit negative for auto lenders and securitised transactions, according to a leading rating agency. 

In a recent note to clients, Moody’s said lenders’ response to situation has entailed changing the way they operate which could be a cause for concern. 

"In Germany and the UK, automakers' financing companies, known as captives, are expanding into used cars, amid saturation in the new vehicle market," said Greg Davies, VP-Senior Research Analyst at Moody's. 

"We also expect captives to increase origination of products like balloon loans or leases with residual value (RV) risk in other European markets, potentially forcing non-captives to riskier origination practices in order to compete."

Measures to further reduce monthly instalments and attract new customers are near exhaustion in the Anglo-German market, as there is limited scope for higher origination of balloon loans and leases with RV.

Moody’s also said exposure to technological obsolescence risks will increase among captives and their securitised transactions, as they increase their residual value exposure through lease-type products in the used car area. 

Captives are at risk of becoming holders of a significant fleet of unutilised combustion-engine vehicles, amid an evolving regulatory framework accompanying the carbon transition process, the agency concluded.

Disclosure:

I have no positions in any of the securities referenced in the contribution

I do not use any non-public, material information in this contribution

To the best of my knowledge, the views expressed in this contribution comply with UK law

I agree with the terms and conditions of ReachX

This contribution is for informational purpose and does not constitute investment advice nor is it an offer to sell or buy, nor is it a recommendation for any security.

ReachX Team

 

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