Retail Auto Loans

  • Retail auto loans were the first major sector of the ABS market. Typical characteristics include:
  • Collateral: Three major sectors:
  • Retail: Typically three- to seven-year fully amortizing level pay loans made to individuals. Majority of loans in the market.
  • Wholesale (Floorplan): Revolving loans made to dealers to finance their inventories.
  • Lease: Generally two- to five-year leases made to individuals.
  • Structure: Fixed or floating, amortizing, owner trust, sequential pay, senior/sub.
  • Losses: Generally low default rates, with moderate recovery values.
  • Prepayments: Generally predictable and driven by defaults, new car purchases (trade-ins), accidents.
  • Auto prepayments tend to be uncorrelated with interest rate changes.
  • Prepayments in Auto ABS are measured using ABS, the monthly rate of loan prepayments as a percentage of the original pool balance.
  • Trade: Generally wide to credit cards; spread to swaps or discount margin.
  • Credit enhancement: Subordination, reserve funds, surety bonds, excess spread, over-collateralization.
  • Typical Issuers: Daimler Chrysler, Ford, GM, Toyota, Honda, AmeriCredit

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