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Fitch: Rising Gas Prices Not a Concern for Auto ABS

Rising gas prices are likely to have a limited impact on U.S. auto loan and lease asset-back securities (ABS) performance, particularly compared to 2008 — when the price of regular grade gasoline spiked to nearly $4.15 a gallon, according to Fitch Ratings.

by Staff
March 15, 2011
3 min to read


NEW YORK — Rising gas prices are likely to have a limited impact on U.S. auto loan and lease asset-back securities (ABS) performance, particularly compared to 2008 — when the price of regular grade gasoline spiked to nearly $4.15 a gallon, according to Fitch Ratings.

The recovery of the ABS market — where finance sources sell pools of loans to gain funding— in July 2009 was one of the main reasons for the return of the auto finance industry. If Fitch’s prediction holds true and the market withstands the impact of rising gas prices, the auto industry could realize further expansion of the auto finance market.

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“Rising gas prices in 2008 were accompanied by the onset of a severe housing and financial crisis, causing a panic reaction that significantly impacted auto valuations and resulted in weak auto ABS asset performance,” said Senior Director Hylton Heard. “This time around, losses on the 2009-2011 vintage auto ABS are likely to be muted due to improved collateral and auto market dynamics, along with the significantly more stable economic environment.'

This is not to say that all auto ABS segments are immune to the rise in gas prices. The ratings agency said consumers may once again shift toward more fuel-efficient vehicles as average fuel prices approach $4 per gallon. And if fuel prices exceed $4 per gallon, recovery and wholesale values for SUVs and less fuel-efficient trucks figure to be the most adversely affected.

“This could, in turn, increase loss severities in some auto ABS transaction,” read the report. “Truck and SUV values soften in early March as average prices for gasoline hit $350, but no material adverse impact on overall recovery rates in auto ABS transactions has been observed to date.”

The report listed three reasons why the industry won’t see a replay of 2008:

• The current strength of used-vehicle values supported by positive supply-and-demand dynamics within the new- and used-vehicle markets, resulting in stronger manufacturer pricing and less reliance on incentives to drive sales.

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• Vehicle manufacturers are producing more fuel-efficient vehicles than two to three years ago (including trucks and SUVs), as the average vehicle is approximately 8 percent more fuel efficient than in 2008.

• A slowly recovering U.S. economy that is aiding consumer demand and vehicle sales, along with increasing access to credit for consumers.

• As fuel prices rise and negatively affect the prices of larger, less fuel-efficient vehicles, smaller vehicle segments experience increased demand and stronger values, and thereby offsetting the drops in the larger vehicle segments, at least to some extent.

“According to Black Book USA, current production and inventory volumes of trucks and SUVs are much lower today than in 2008,” read the report. “Therefore, it is easier for manufacturers to better manage changes in consumer buying habits. This, combined with improved economic and consumer fundamentals, is supporting near record high used-vehicle values, including for the larger vehicle segments. This is in contrast to the state of the markets in 2008.”

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