TEXT-Fitch:U.S. auto ABS losses end 2012 higher;performance on track for 2013

Thu Jan 24, 2013 9:04am EST

Jan 24 - Seasonal patterns drove losses on both U.S. prime and subprime auto loan ABS higher last month, according to the latest index results from Fitch Ratings.

Despite this, Fitch expects prime asset performance to remain strong in 2013. However, losses will normalize and increase off of record low rates recorded in 2012 throughout the course of the year.

Prime losses closed out 2012 within historically low levels and 18% below the rate seen in December 2011. Fitch predicts cumulative net losses in the range of 0.50%-1.20% in 2013 (within range of the 2004-2005 vintages). Factors supporting performance in 2013 include healthy used vehicle values albeit at marginally lower values, and continued strong performance of the 2009-2012 vintage transactions.

Fitch's 2013 outlook for ratings performance is positive. Fitch expects the number of positive rating actions to increase this year given the higher number of transactions coming up for review. Strong asset performance with lower-than-projected loss rates will also help spur upgrades and potentially outlook revisions.

Prime 60+ day delinquencies rose 8.3% to 0.39% in December from 0.36% the previous month. Prime auto ABS delinquencies were still 22% improved year-over-year (YOY). Prime annualized net losses (ANL) rose 11.1% month-over-month (MOM) to 0.40% in December, still well below the rate in December 2011. Prime Cumulative Net Losses (CNL) remained flat month-over-month (MOM) at 0.29% in December, recording a solid 46.3% improvement over the same period in 2011.

Subprime auto ABS displayed some weakness during the latter half of 2012. Subprime 60+ days delinquencies were up 3.1% MOM to 3.64% in December, and were 14.1% higher YOY. Subprime ANL rose to 6.92% in December (the seventh consecutive increase) and were 8.8% above December 2011. The December rate was the highest ANL rate in over a year (November 2011).

Subprime losses, outside seasonal trends, are more prone to volatility due to the weaker credit metrics prevalent in this sector. Marginally weaker asset performance along with slightly looser underwriting in recently issued transactions contributed to higher loss rates. Despite the rise in subprime ANL in late 2012, overall loss rates in the 2009-2011 vintages are still well below the 2006-2008 vintage losses. Further, upcoming tax refunds will support obligors who typically use this income to pay down debts which supports performance in the coming spring months.

Used vehicle values were healthy in late 2012 and consumer demand strong as sales levels remained elevated relative to 2011. The Manheim Used Vehicle Value Index, which tracks values of used vehicles at auction, ended the year at 124.1, up 1.2% from 122.6 in November. Inventory levels of new vehicles dropped in December over November, while incentives were low historically, supporting used vehicle values.

Fitch's auto ABS indices comprise of $63.86 billion of outstanding notes issued from 117 transactions. Of this amount, 75% comprise prime auto loan ABS and the remaining 25% subprime ABS.

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