Fitch: U.S. Auto Asset Sector Credit Metrics Beginning to Normalize After Historic Levels
U.S. auto asset sector credit metrics will modestly weaken and normalize in 2013 from the decade-low levels experienced in 2012, according to Fitch Ratings.
Fitch expects moderation in used car values and a slight relaxation in underwriting terms on recent vintage loans. Overall credit performance is expected to be relatively better than historical averages, supporting auto lender ratings.
Credit losses and delinquencies ticked up during the 2H12, mainly due to the seasonality typically experienced in the second half, slight relaxation of underwriting standards in recent vintage loans and moderation in used car values.
Originations were strong in 2012, a trend which is expected to continue into 2013.
January new car sales were up 10% year-over-year and the seasonally adjusted annual sales rate (SAAR) running at 15.3 million units, a good sign for originations in 2013.
Competition in subprime lending has increased with a number of new entrants, some backed by private equity capital, entering the space due to relatively easier access to funding (primarily ABS). To date, Fitch has seen modest shifts in in underwriting standards which are viewed more as normalizing rather than overly aggressive lending tactics.
Auto lenders demonstrated increased willingness to lend through 2012, thanks to robust availability of cheap funding sources. Fitch expects funding costs to remain stable in 2013.
The full 'U.S. Auto Asset Quality Review 4Q12' is available at 'www.fitchratings.com.'
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research U.S. Auto Asset Quality Review: 4Q12
Mohak Rao, CFA
Fitch Ratings, Inc.
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New York, NY 10004
Brian Bertsch, +1-212-908-0549 (New York)