Fitch: Competitive U.S. Auto Pressures to Bend but Not Break ABS

NEW YORK--(BUSINESS WIRE)-- As auto sales near their peak, U.S. auto ABS appears poised to withstand challenges posed by increased competition and anticipated declines in wholesale vehicle values, according to the latest video in Fitch Ratings' Virtual Investor Series.

Fitch expects annual US auto sales to peak at roughly 17.5 million in 2016 before falling back to around 17 million units in 2017 and beyond. "So far we are seeing encouraging signs of industry discipline as some manufacturers are pulling back on the production of poorer selling vehicles and adding capacity to produce hotter selling models," says Stephen Brown, Senior Director, U.S. Corporates. "But that dynamic could change quickly if competitive pressures intensify."

Earlier this year, Fitch upgraded Ford to 'BBB' from 'BBB-' and revised up GM's rating outlook to 'BBB-'/Positive from 'BBB-'/Stable, reflecting work done since the last downturn to improve balance sheets and pay down debt. In the longer term, ratings for both companies will be guided more by each company's underlying credit fundamentals and risk profile than by conditions in the global auto market.

In US auto loan ABS, competitive pressures are leading lenders to offer loans with longer terms where 72 and 84 month loan terms are becoming the norm. Strong wholesale markets have helped to mitigate this risk. "Our expectation is that competition among lenders, particularly in the subprime space will continue to intensify over the coming year," according to ABS Managing Director John Bella. "With wholesale markets also expected to weaken this will inevitably lead to a decline in ABS performance metrics."

With that said, Fitch maintains stable outlooks across the auto ABS sector as we expect that the transactions that we rate have sufficient protection to weather the anticipated downturn.

Additional videos in Fitch's 'Cross-Sector Perspectives' series are available on Fitch's Virtual Investor page at 'www.fitchratings.com'.

https://www.fitchratings.com/site/crosscurrents

Additional information is available on www.fitchratings.com

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View source version on businesswire.com: http://www.businesswire.com/news/home/20160808005760/en/

Fitch Ratings
Stephen Brown, +1-312-368-3139
Senior Director, U.S. Autos
Fitch Ratings, Inc., 70 West Madison Street, Chicago, IL 60602
or
John Bella, +1-212-908-0243
Managing Director, Co-Head of U.S. ABS
or
Media Relations
Alyssa Castelli, New York, +1-212-908-0540
[email protected]
Sandro Scenga, New York, +1-212-908-0278
[email protected]

Source: Fitch Ratings

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