S&P: Growth Pace in U.S. Auto ABS to Continue in 2002

    NEW YORK--Standard & Poor's--Jan. 7, 2002--Current conditions in the auto asset-backed securities market should result in 2002 being another record year for the sector, with as much as a 7% rise in issuance over 2001 to $74 billion, according to Standard & Poor's.
    "The impact of recent corporate rating downgrades of captive finance companies will continue to make asset securitization an attractive funding alternative," said Joseph Sheridan, managing director of Asset-Backed Securities at Standard & Poor's.
    The Big Three automakers, General Motors Corp., DaimlerChrysler AG, and Ford Motor Co., were downgraded in late 2001. They have been regular issuers in the asset-backed term market and still "have plenty of receivables on their balance sheets available to be securitized and have not securitized as high a percentage of assets as the monoline credit card companies," said Paul Kelly, managing director of ABS Consumer Assets at Standard & Poor's.
    The securitization market also benefited from robust car sales in 2001 - the second best year ever, with sales supported by rebates and low-rate financing. The Big Three engaged in fierce competitive pricing, including the 0% financing deals designed to maintain or recapture market share. Zero-percent financing deals offered post Sept. 11 will also likely accelerate new car purchase decisions for many consumers and may cause auto ABS issuance to be front-loaded in 2002.
    The current windfall will surely taper off as the reality of recession sets in, but would not have a detrimental effect on securitizations. "Although the economy will put a damper on car sales and loan growth will likely decline, issuers will have a greater incentive to make securitization a larger share of the funding mix," said Mr. Sheridan.
    Also, subvention, or below-market rate financing, popular among captive finance companies in a down market, should stimulate additional loan origination. Subvention rate financing will also attract loan obligors who may have otherwise made a cash purchase and improve the obligor mix, thus, at least, partially offsetting the adverse effects of a weaker economy.