Europe’s Car-Leasing Boom Sets Off Alarm Bells
- Returned cars suppress market prices, threaten bond payments
- Residual values affect almost 80% of auto-debt securitizations
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A shift in how Europeans finance their cars is threatening to expose bondholders in the region to the same risk that’s been building in the U.S. for decades.
Buyers of notes backed by auto debt are increasingly vulnerable to drops in used-vehicle prices because more and more drivers in Europe are leasing cars and trading them in for new ones. The U.S. is already dominated by leasing contracts, which consist of low monthly payments for several years followed by a large lump sum or return of the car, unlike traditional loans of equal installments.