The risk of European automotive sector stress spilling over into small and medium-sized enterprise (SME) asset-backed securities (ABS) is “limited”, according to Moody’s Ratings.
The ratings agency came to the conclusion after identifying that the SME ABS transactions it rates have “limited exposure” to SMEs operating in the automotive sector, while the short duration of the underlying SME collateral “further reduces sensitivity to sector deterioration”.
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Its analysis found that SME ABS transactions’ exposure to automotive-related SMEs averages around 2.5 per cent of outstanding portfolios, even in countries with large automotive sectors, such as Germany, France, Italy and Spain.
The risk is further mitigated by high borrower diversification and rapid amortisation, said Angel Jimenez, assistant vice president, analyst at Moody’s, adding that it is these “structural features” that help to insulate SME ABS performance from industry volatility.
Moody’s warned, though, that the European automotive industry, which represents around seven per cent of EU GDP and produces approximately 16 per cent of cars manufactured worldwide, continued to remain “weak”.
Among the pressures faced by automotive manufacturers are “muted” consumer demand for new cars, global competition and an ongoing shift to electric vehicles (EVs).
Manufacturers have responded by adjusting product pipelines and pricing strategies.
But the shift to EVs is creating “a challenging environment for traditional EU carmakers that are not leading the transition toward full electrification and are also under pressure because of further changes to product road maps”.
One particularly significant structural shift highlighted by Moody’s is “the rapid penetration” of Chinese-built battery EVs in the European market.
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The ratings agency acknowledged that these pressures affect a broad range of SMEs operating across the automotive value chain, “whose debt sometimes backs the SME ABS we rate”.
“However, the sector has shown some signs of stabilisation of late amid an increasingly flexible regulatory framework,” Moody’s stated in its report.
It is referring to the EU’s Automotive Package, adopted in December 2025, and which recently introduced flexibilities “to reduce compliance volatility”.
“SME ABS transactions we rate have very limited exposure to auto‑related borrowers, and the short duration of the underlying collateral further reduces credit sensitivity,” said Luis Mozos, vice president, senior credit officer at Moody’s. “As a result, we expect the impact of continued pressure in the auto industry on SME securitisations to remain minimal.”
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