Introduction to Securitization

AUTO LOAN SECURITIZATION

Auto loan securitization is essentially retail collateral, as auto finance is essentially a variant of consumer finance. Other consumer finance receivables include the receivables arising out of typical consumer finance and installment credit transactions.

Forms of installment credit have been prime movers of auto sales in recent years. At certain phases in the economic cycle, auto finance becomes the most important way of selling vehicles. In most markets, a larger part of vehicles sales are installment-funded than are bought with consumer equity.

If auto financing is the key to auto sales, auto loan securitization is the key to refinancing of auto loan transactions. In various countries, there prevail different modes of funding of vehicles such as

• Secured loans

• Conditional sales

• Hire purchase

• Financial leases

• Operating leases

 

In a broad sense, auto loan securitization covers each of these methods of funding, except for the last one. Operating leases and rentals are a different product in view of the nature of the cash flow and the inherent risks.

Outside the mortgage-backed market, auto loan securitization was the second application of securitization, the first being computer lease securitization. Captive finance companies of the Big 3—Ford Motor Credit Co., General Motors Corp., and DaimlerChrysler—are the leading issuers of auto-loan-backed securities.

Ever since, auto loans have formed an important segment in the ABS market not ...