Subprime Auto ABS Creates Opportunities: Three Clues You’re Ready

Posted on by

Higher delinquencies and lower origination numbers mandate new or improved asset-backed securities (ABS) business model for subprime auto finance market.


You’ve perhaps heard of the shake-up at Uber over their auto financing policies with drivers. Brand new CEO Dara Khosrowshahi will have his hands full managing Uber’s divestment (liquidation) of its deeply flawed Xchange Leasing subprime lending program:


“Due to the breath-taking losses from this subprime leasing enterprise — $9,000 per car on average! — the executives agreed to shut it down.”

How awful was this program, which experts agree would never had gotten sign-off if it had actually been expected to make money? “The numbers are big. Uber has titles to nearly 40,000 vehicles through Xchange Leasing. It now has to get the cars back from its drivers and sell them in the wholesale market…if Uber loses $9,000 per car on average on these 40,000 cars, it will add another $360 million in losses on top of the losses it has already booked.”

Subprime Lending Nightmare

There you have it: A true sub-prime lending nightmare we will all watch with interest. However, those in the industry have other news to attend to this summer.

For example, no one was truly surprised by second quarter origination news: ”Subprime auto loan and lease originations declined in the second quarter, but delinquencies still rose as the market adjusts to previous growth in subprime originations, according to reports this week from the New York Federal Reserve and TransUnion.”

We all agree that the market is taking a slight pause. These realities create opportunities for those who would like to grow their secondary market digital asset management, collateralization and securitization businesses. Companies such as Nissan, Chrysler and JD Byrider have realized profitable change by establishing a digital contract process that insures assets can make money even if write-offs from delinquencies and fewer originations are poised to cut into the bottom line.

Three Signs that Show You’re Ready

How do you know you are ready to create or update a seamless, asset-based securities business that can offset industry corrections? Here are three clues:

1) Your third-party partners are restless: If your ABS solution does not have a specialized interface and capability for third parties (i.e., those that were not the original parties that signed the contract, such as auditors, counsels or servicers) your partners might be uncomfortably aware that all of you are open to risk. If there are no hard-and-fast rules about when and what they can access, who gets to manage what, who owns the original, and the facilitation of risk, ownership and compliance/legality then your partners might see trouble brewing down the line?


2) Your attorneys are raising questions: Can you honestly say that legal questions about your ABS can be answered instantly, according to the law? It’s your attorney’s job to come up with worst-case scenarios for your company. When you deploy an Electronic Asset Management Solution that is based on a deep knowledge of the laws, regulations, compliance and auditing guidelines, you can mitigate financial and legal risk with certitude.


3) You’re losing money on your ABS or not making what you thought you’d make: As I mentioned earlier, your margins need protection in this environment. If you have an ABS system that’s not realizing either the savings or the profits you expected, you can review your choice and make a new one that integrates with your other systems in accounting and elsewhere. A seamless digital transaction system will often create efficiencies and the opportunities you’re missing.


None of us can afford losses like Uber is seeing from its subprime auto lending mishap. The best way to ride these waves of change is to make sure that while our originations dip and delinquencies rise, we can count on our ABS system to make money; protect us from costly risks and make us an attractive business partner today and into the future.

We partner with originators to digitize and streamline their processes. Also, our digital solutions team will be onsite at the 23rd Annual ABS East Conference, September 17 – 19, 2017,
Fountainebleau, Miami. Schedule a meeting before the conference to reserve an appointment with one of our experts. We will also be at the defi Solutions Client Summit in NYLO Hotel Las Colinas September 19-21st if you would like to schedule a meeting at this event.