Shifting Gears: The Acceleration of Prime Auto Securitization

Shifting Gears: The Acceleration of Prime Auto Securitization

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John Palphreyman
JUL 03, 2024

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Asset-backed securities (“ABS”) collateralized by prime auto loans are a major component of the ABS market. The auto ABS subsector, which includes both prime and subprime auto loan securitizations, is consistently the largest contributor to new annual ABS supply. To illustrate, in 2023 over $146 billion of auto loan paper was securitized, accounting for more than 57% of the total $256 billon ABS new issue volume.1 Over the last year, we’ve observed a marked increase in the number of banks and credit unions opting to securitize portions of their prime auto loan portfolios. We attribute this trend to rising interest rates which reduces the “stickiness” of retail deposits, and recent regulatory changes affecting both types of institutions. This has been the catalyst for their increased appetite for securitization. The incentives driving these financial institutions to securitize prime auto loans differ greatly from those of traditional OEM captive auto finance companies.