Fitch: US Floorplan ABS Stable; Auto Sales, Dealer Margins Slide

NEW YORK--()--The best of times may have passed for US auto dealers with vehicle sales likely past their peak and dealer profit margins slipping. However, US auto dealer floorplan (DFP) ABS trust performance metrics and ratings will remain stable heading into 2017, according to Fitch Ratings.

Auto sales dipped in 2016, and manufacturers used a combination of higher cash incentives and 0% financing to entice consumers into showrooms. Incentives rose each month going back to early 2015 and were close to $3,900 per vehicle in September.

These sales tactics will continue to eat into dealer profits and push down used vehicle values into 2017. However, dealer profits remain healthy at a lower level, while overall dealer costs, including capital financing costs, stay low.

US automobile inventory levels hit 61 days supply through Sept. 1, according to "Automotive News," the highest level for the month of September going back to 2012.

Vehicle inventories that sit on dealer lots for longer periods mean higher dealer costs, lower dealer profit margins and lower monthly payment rates (MPR) in DFP ABS.

Supply ranged from 55 to 61 days for the same period going back to 2012. Dealers typically aim for a 60-day supply level. Therefore, the current rate is at the top of this range but could rise further if sales dip and production is not managed by manufacturers. Manufacturers with higher inventories through Sept. 1 included Dodge/Ram (81 days), Ford (78 days), General Motors (74 days) and Chrysler (71 days).

Fitch's Auto DFP ABS MPR index averaged 38.2% through the September distribution period, versus 41.3% recorded for full-year 2015. The decline was driven by slowing sales and creeping inventory levels.

The 3-month average MPR in the Ford Credit Master Owner Trust was down marginally through September on a yearly basis, but comfortably within historical levels. General Motors Financial Master Owner Trust DFP platform's MPR was fairly stable last month and also within historical levels.

Dealer profits appear to have plateaued and come off their peak. The National Automobile Dealers Association reported dealer profit levels declined 4.1% (pretax) through second-quarter 2016 compared with second-quarter 2015. Dealers' ROE for first-half 2016 was 31.3%, compared to 33.5% when sales peaked a year earlier.

Importantly, none of the outstanding DFP ABS trusts have any losses or dealer defaults over the past year, as dealer health is still fairly robust, despite some metrics slowing as mentioned, the majority of dealer networks are all in good shape financially.

The number of dealers also remains at a far lower level than the period leading up to, and during, the most recent recessionary period when there was a clear oversupply of dealers - particularly for US networks that issue DFP ABS. Manufacturers are clearly not looking to add dealer locations and this will bode well for the existing dealer networks.

Fitch's outlook for the sector is stable for asset and ratings performance. We currently rate seven DFP ABS trusts issued from 23 outstanding series totaling $17.0 billion.

The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTPS://WWW.FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

Copyright© 2016 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch's factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch's ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed.

The information in this report is provided "as is" without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers.

For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

Contacts

Fitch Ratings
Hylton Heard
Senior Director
+1 212-908-0214
or
Timothy McNally
Associate Director
+1 212-908-0870
or
Rob Rowan
Senior Analyst
Fitch Wire
+1 212-908-9159
or
Media Relations
Sandro Scenga, +1 212-908-0278
sandro.scenga@fitchratings.com

Contacts

Fitch Ratings
Hylton Heard
Senior Director
+1 212-908-0214
or
Timothy McNally
Associate Director
+1 212-908-0870
or
Rob Rowan
Senior Analyst
Fitch Wire
+1 212-908-9159
or
Media Relations
Sandro Scenga, +1 212-908-0278
sandro.scenga@fitchratings.com