U.S. TALF Program Could Help Foreign Automakers, Too

Nissan is widely reported to be among the first car companies to benefit from a U.S. government program aimed at thawing out the market for asset-backed securities.

That’s good news for the auto industry in the short run, if the ABS market starts to recover.

However, the news could also add fuel to political concerns about foreign corporations reaping the benefits of U.S. government aid, aimed at stopping the U.S. recession. Those concerns cut both ways. The German government, for instance, is said to be worried that bailout money intended for GM’s Opel operation in Germany could end up in Detroit, instead.

Either way, getting credit markets working again is a prerequisite to any recovery in the auto sector. Asset-backed securities are a key way in which automakers and their finance companies raise funds. In turn, those funds are used to originate new loans and leases for retail customers.

Asset-backed securities work like this: in effect, investors buy the income stream from a bundle of auto loans. The auto lender uses the proceeds to originate new retail loans, without having to wait for retail customers to repay the loans. In effect, the investors who buy the asset-backed securities collect the income from the auto loans as they are repaid.

But investors bailed out of the ABS market in late 2008. That had an immediate effect on auto lenders, who were forced to rely on alternate ways to raise money, like bank loans, were also scarce and expensive.
To try and thaw out the ABS market, the Federal Reserve created the Term Asset-Backed Securities Loan Facility, or TALF, late last year. The TALF offers loans to investors who buy highly rated asset-backed securities.

On its website, the New York Federal Reserve Bank lists five classes of auto-related ABS transactions that are now eligible to be purchased with TALF loans. One is backed by prime-risk auto loans; one by prime-risk auto leases; one by subprime auto loans; one by loans for RVs or motorcycles; plus one for auto dealer “floorplan” loans. Dealers borrow so-called floorplan loans, to pay for their inventory until it is retailed.

A Nissan spokesman said the company would not comment on stories that identified Nissan as one of the ABS issuers with a transaction eligible for TALF loans.