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Fitch: VW Emissions Updates Support Our EMEA ABS Assumptions
December 17, 2015 / 1:50 PM / 2 years ago

Fitch: VW Emissions Updates Support Our EMEA ABS Assumptions

(The following statement was released by the rating agency) LONDON, December 17 (Fitch) Recent updates from Volkswagen AG (VW) and Volkswagen Financial Services (VWFS) on the impact of the emissions scandal support our key assumptions for affected EMEA ABS transactions, Fitch Ratings says. Initial performance data and measures taken by VWFS to mitigate counterparty risks also support the credit quality of these VW ABS transactions, which we affirmed or upgraded last month. VW's November agreement with the German Federal Motor Transport Authority to fix 2.0 and 1.6 litre EA189 engines suggest that a technical fix for vehicles affected by manipulation of nitrogen oxide (NOx) emission tests can be achieved relatively easily. VW currently expects no impact on performance or fuel consumption, but this has yet to be confirmed for all models. This reinforces Fitch's view that risk on ABS from reduced cash flows due to consumer rights is small. Exposure to NOx affected vehicles is now available in transactions' investor reports, improving transparency. VW said on 9 December that considerably fewer vehicles have wrongly stated CO2 emissions than first thought. Internal re-measurements found deviations in only nine model variants with an annual production of approximately 36,000 vehicles. A complete list of the affected VW cars in ABS transactions is not yet available, but Fitch expects potential exposure in ABS transactions to be materially lower than that implied by VW's initial statement that 800,000 vehicles were affected. This underpins Fitch's view that risks to ABS transactions from potentially CO2 affected vehicles is adequately addressed in recently issued transactions via dedicated reserves. They are adjusted regularly to cover clearly identified and potentially affected vehicles. The seller is obliged to repurchase these vehicles. VWFS told Fitch that once all affected vehicles are identified, it will no longer sell CO2 affected vehicles to its revolving ABS transactions. VWFS stated that it will decide on potential measures in older transactions once their exact exposure is known. As we said in our 18 November VW ABS portfolio review, our expectation of these transactions' exposures to affected vehicles is not affecting ratings given available credit enhancement. Most transactions could withstand bigger price decreases than we expect, and for more vehicles than currently identified, before ratings are affected. Data to end-November shows no indication of rising delinquency or default rates in VW's EMEA ABS transactions since VW announced of NOx emission irregularities on 22 September. In UK transactions, Fitch sees no signs of increased voluntary terminations so far. The most recent reports show a slight increase in the percentage of contracts terminated, but this appears consistent with normal ranges over time. For instance, Driver UK Master reported 20bp in October, compared with12bp-19bp over the past 12 months. Latest price data from Schwacke for Germany show no significant drops in value since the NOx announcement. The used-car values of VW vehicles were only marginally worse than all used car values, with no noticeable difference between diesel and petrol engine vehicles. This is in contrast to the US where VW diesels have underperformed the market by 10%-20%, and VW petrol cars by 5%-15%. VWFS has confirmed that remedial actions are in place following our downgrade of VW on 9 November 2015 to 'BBB'/'F2' with a negative outlook, where ABS deal documentation foresees such measures. These include measures to address commingling risk and to fund reserves if necessary. Contact: Adrian Pfaff-Seiler Associate Director Structured Finance +49 69 76 80 76 259 Fitch Deutschland GmbH Taunusanlage 17 D-60325 Frankfurt am Main Eberhard Hackel Senior Director Structured Finance +49 69 768 076 117 Mark Brown Senior Director Fitch Wire +44 20 3530 1588 Media Relations: Christian Giesen, Frankfurt am Main, Tel: +49 69 768076 232, Email:; Athos Larkou, London, Tel: +44 203 530 1549, Email: The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at All opinions expressed are those of Fitch Ratings. Related Research Auto ABS Index - Europe 4Q15 here VW Emissions Scandal: Impact on VW-Originated Auto ABS Transactions here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE '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.

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