U.S. Dealer Floorplan ABS: Navigating through the Storm

Abstract

As asset performance in Fitch-rated dealer floorplan (DFP) asset-backed securities (ABS) improved and stabilized over the past year, transactions continue to incur minimal losses. Performance metrics supporting the positive trends in DFP ABS have included higher purchase rates, improved sales, stronger monthly payment rates (MPRs), and a return of inventory aging to historical levels. After several years of severe pressures, U.S. auto dealerships reversed course and improved their financial health by cutting overall costs and focused to an increasing degree on used car sales, service, and parts to improve profitability. However, U.S. dealerships face risks that could dent their financial stability, including a double-dip economic recession, lower vehicle and equipment sales, and rising costs that, all combined, could pressure DFP ABS performance. This article discusses the key trends and metrics driving the overall performance of U.S. DFP ABS rated by Fitch, and provides insight into the current health of U.S. auto- and non-auto-related (diversified equipment) dealer networks, in addition to other factors that impact the health of U.S. dealerships.

TOPICS: Asset-backed securities (ABS), legal and regulatory issues for structured finance