Fitch: Summertime Blues Approaching for U.S. Auto ABS
Losses and delinquencies improved again for U.S. auto ABS last month, though the summer months do not figure to be as kind for the sector, according to the latest monthly index results from Fitch Ratings.
Prime and subprime auto loan ABS metrics displayed better results in May as delinquencies and losses declined. Despite improvements over the past few months, Fitch believes auto ABS performance will slowly deteriorate again during the summer. Pressure on used vehicle values will increase and drive loss severity, while weaker credit quality in recent 2013-2015 vintages will move loss frequency higher.
Prime 60+ days delinquencies slowed to 0.30% in May, 12% lower month-over-month (MoM) declining to the lowest level since May 2015. Annualized net losses (ANL) slowed by 12% MoM reaching 0.40%. Delinquencies were flat year-over-year (YoY) while ANL were 32% higher.
In the subprime sector, delinquencies improved nearly 2% MoM to 3.64%, though they are still 9% worse versus May 2015. Subprime ANL posted solid performance in May dropping to 6.52%, a 12% drop over April, but 52% above the level recorded a year ago.
The April collection/May reporting period has produced the strongest performance metrics of the year with consumers reaping the benefits of tax refunds using them to pay down debts. Looking ahead, performance metrics are likely to slow and losses to rise during the summer season. With tax season over, Fitch expects subprime ANL to climb to 6.50%-8% over the next four months.
Current economic conditions appear mixed but healthy overall. Job growth slowed materially in May, a bad sign which may indicate slower economic activity in coming months. However, the equities market continued to tick up with stock prices elevated, in part driven by strong fiscal support along with low interest rates and gas prices.
The seasonal adjusted annual rate (SAAR) of new vehicle sales was 17.4 million units in May, down from the same period in 2015. Used vehicle demand remains fairly healthy but will continue to be pressured in 2016 from rising used vehicle supply. Gas prices have crept up over the past six weeks, which will support compact car vehicle values which may have hit a floor in May. Nevertheless, these models remain the weakest vehicle segment as current oil prices continue to drive consumers towards larger SUV and truck models.
Overall, the used vehicle market was fairly active in May with prices stable. The Manheim Used Vehicle Value Index was higher, albeit by a small margin rising to 124.5 from 122.8 in April. The index was down by just over 1% from a year earlier.
Fitch upgraded 38 outstanding auto ABS tranches through early June, in line with the first six months of 2015. Despite slower asset performance this year for both the prime and subprime sectors, Fitch has a stable asset performance outlook for the sector in 2016, while the ratings\ outlook is positive.
Fitch's U.S. auto ABS indices comprise $103 billion of outstanding collateral, of which 63% is prime and 37% subprime. Importantly, the total auto lending market hit a record level of $1.1 trillion in May. Fitch's prime auto ABS index only makes up approximately 6.2% of the total auto loans outstanding in the U.S., and the subprime index only 3.6% in total.
Additional information is available on www.fitchratings.com
Fitch Ratings, Inc., 33 Whitehall Street, New York, NY 10004
Sandro Scenga, +1 212-908-0278