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European Auto ABS: Have Delinquencies Hit Rock Bottom?

This commentary provides an overview of increasing early-stage arrears performance within European auto asset-backed securities (ABS) following DBRS Morningstar’s review of loan- and lease-level data from the underlying exposure templates submitted to the European DataWarehouse.

Key summary highlights include:
-- 31-60 day arrears levels have doubled over the last 12 months to 0.3% for European countries (excluding the UK);
-- Certain subsets of auto ABS transactions appear more sensitive, such as those associated with noncaptive originators; and
-- Any subsequent impact on defaults should be contained due to the limited exposure to high-risk obligors.

“Despite the deteriorating trend, early-stage delinquencies are rising from historic lows, reflecting the end of a benign economic cycle. Moreover, fundamentals remain strong due to the generally high underwriting standards of European lenders and the limited exposure to high-risk obligors. We expect any downstream increase in defaults to remain limited to subsets related to certain cohorts including noncaptive used vehicle financing, longer contract terms, unemployed or student obligors, and higher interest rate contracts.”, said Alex Garrod, Senior Vice President, European ABS at DBRS Morningstar.