Marcie
Belles, in association
with Auto Finance News
Used vehicles
Go deeper with GlobalData
Lease, fleet declines will hamper
used-car supply through 2011
Declines in retail and fleet sales the past
few years will diminish the supply of used cars 8% this year and
another 9% next year. In all, vehicle supply will fall 3.8m
units by year-end 2011, according to data from JD Power and
Associates’ Power Information Network.
Though the impact will vary by segment, the
decreased supply will bolster residual values for lenders and
manufacturers, said Jie Du, JD Power’s director of scientific
programming and modelling.
“Based on PIN data, consumers return their vehicle
to purchase another vehicle after four-to-six years,” Du said. “We
do see a lot of one- and two-year-old vehicles coming back – those
are repossessions. We are feeling a pinch to the supply from this
part of the purchase.”
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By GlobalDataOverall, new-vehicle sales have been declining for
years, from 14.8m in 2000 to 8.6m in 2009. Volume in 2010 should
drop another 4.2m units, according to JD Power. In the past two
years, 1.9m fewer units were leased, 4.5m fewer were purchased, and
2.2m fewer were sold to fleets.
Offsetting those declines are expected increases in
2010 and 2011. JD Power estimates that new-vehicle retail sales
will climb 3.7m units in the next two years, and fleet sales will
rise 900,000 units. The net result will be a 3.8m-unit drop in
vehicle supply.
Regulation
FDIC deputy
dismisses
lighter risk mandates
Issuers of auto loan-backed securitisations
will likely have to adhere to the same risk-retention requirements
as issuers of other asset classes – even subprime mortgage – said
Michael Krimminger, deputy to the chairman for policy of the
Federal Deposit Insurance Corp.
Krimminger’s comments came during a session at the
American Securitization Forum’s annual conference last month, in
response to a question from fellow panellist Lawrence Rubenstein,
general counsel for Wells Fargo Asset Securities Corp. About 500
securitisers, investors, and investment bankers packed the room for
the discussion, which centred on the FDIC’s “safe harbour”
agreement. The proposed rule protects the underlying assets of
securities held by failed banks from being seized by US
regulators.
The FDIC is currently considering whether to
require additional conditions for securitisers, including a mandate
to retain a portion of the credit risk of the securitised assets as
an incentive to ensure proper underwriting. The current proposal
sets the risk-retention requirement at 5%.
During the session, Rubenstein pointed out that the
risk-retention condition was driven by the extraordinarily high
losses in the subprime and alt-A mortgage markets. As such,
Rubenstein suggested, maybe prime loans – whether auto, mortgage,
or other assets – could be excluded from the requirement,
particularly since additional safeguards will be in place, like the
supply of extensive loan-level information and inclusion of
repurchase mechanisms.
“Personally, I would tend to be loathe to make
distinctions within certain asset categories,” Krimminger answered,
stipulating that his comments were not official policy of the
FDIC.
He directed the audience to a list of questions in
the preliminary version of the rule.
“There are some 35 questions with many subparts in
the Advance Notice of Proposed Rulemaking,” he said. “One of the
questions we ask is the role of risk retention in regard to some of
the other categories. How do you apply risk retention with regard
to different asset classes? And so there are distinctions made with
regard to different asset classes.”
Still, Krimminger said he would be “a little
concerned” making distinctions within asset classes.
“I think one of the lessons I’ve gained from the
crisis is that some of the distinctions that we oftentimes make
doing different types of residential mortgages are somewhat false,”
he added. “I’ve seen plenty of prime loans look awfully subprime. I
won’t belabour the point. But that is a question I’d be a little
bit loathe to subdivide into different asset classes.”
Vehicle recall: Toyota
Gauging the
ripple effect
As someone who focuses on Japan, I can not
help but comment on Toyota’s problems. Indeed, I’m writing this
while listening to the careful and polite phrasing of Toyota
President Akio Toyoda and the far briefer and less nuanced comments
of his interpreter. I did not think the set phrase “genchi,
genbutsu” was conveyed quite right – the Toyota management
principle of “act on the basis of data” came across as cold-blooded
rather than the only way in which one can approach an engineering
issue.
The magnitude of the impact on finance and
remarketing is not apparent, but there will be one.
Only over the next couple months will we learn
through the analysis of Tom Kontos at Adesa and the other auction
houses and the periodic updates of pricing services a second and
more familiar risk, that resale values will be below
expectations.
This will impact lenders through higher losses,
will force the re-pricing of GAP insurance, will cut into sales of
new vehicles and may lead to higher defaults.
Where there is risk, there are both financial
issues and potential profits. Dealers tread a fine line if they
trumpet insurance products too loudly, because it may cause
customers to shy away from the typically upscale products on which
such features first appear.
At the same time, there may be a market for “recall
insurance” that will provide for a loaner while waiting for a
“fix.” I am sure there are other products where subtle reminders of
Toyota’s problems can be used as a marketing tool.
Risk is now apparent at the dealership level. No
one is immune from such incidents, and overall this situation
suggests the importance of diversifying risk – that relative to
stand-alone sales points there are advantages to running a
dealership group that incorporates multiple brands from different
manufacturers and in different segments.
Finally, the coverage of the recalls shows that,
because of the large number of transactions that those in the
finance and insurance markets handle, they have the potential to
aggregate and observe risk prior to others.
Shifts in regional economies, changes in the
uptake of options packages – there are surely other areas where the
“cut” of information that finance provides is different from that
available through other means, such as regional economic data or
brand-specific data. Can we leverage that?
