Credit risk management in the automotive industry

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When Alexander Hener began his thesis three years ago, he likely did not foresee its current significance. This relevance is highlighted by the first asset-backed securities (ABS) based on German auto finance contracts, structured by Volkswagen Financial Services in November 2004. The True-Sale Initiative, supported by the Kreditanstalt für Wiederaufbau, suggests that more such transactions are on the horizon. Hener addresses a critical question for German captives: which finance or lease contracts should be securitized in an ABS transaction? He explores why portfolios, especially those of automotive captives, often face inefficient pricing. The analysis delves into various interest groups and potential conflicts in auto finance and leasing, proposing securitization as a comprehensive solution. From the issuer's perspective, Hener develops a framework to guide decisions on contract inclusion in ABS transactions. This framework incorporates factors such as regulatory capital arbitrage, return on equity, and risk-adjusted capital optimization. To support this approach, he thoroughly examines the underlying risks, particularly credit risk, and evaluates the feasibility of various credit risk models within the industry context.