RPT-Fitch: U.S. Auto ABS Losses Rise as 'Softer Fall' Approaches

Mon Aug 26, 2013 9:05am EDT

Aug 26 (Reuters) - (The following statement was released by the rating agency)

Losses on both prime and subprime U.S. auto ABS rose in July following lows seen earlier in the spring, according to Fitch Ratings. Despite the increase, used vehicle values have stayed strong in the past two months. Additionally, overall asset performance remains strong heading into the softer fall months thanks to the healthy wholesale vehicle market and slowly improving economic factors. That said, some leveling off of performance is in store.

Auto ABS losses are likely to increase as the seasonally weak fall progresses. Dealers will begin discounting existing 2013 models to make way for new 2014 models, which typically impacts loss severity and drives loss rates higher. In the prime sector, 60+ days delinquencies rose 10% to 0.33% in July month-over-month (MOM). However, delinquencies are still 13% lower compared to July 2012.

Prime annualized net losses (ANL) were at 0.31% in July up from 0.21% in June. Even with the larger than normal increase, loss rates are still very low historically and in line with July 2012. Prime cumulative net losses (CNL) were at a record low in July at 0.27%, and were 25% lower YOY.

The improving economy and housing market, along with increased construction, has led to rising new and used vehicle sales (trucks, in particular) and solid demand for automobiles supporting asset values.

The Manheim Used Vehicle Value Index was up for the second consecutive month in July, at 120.9 marking a 1% increase from 119.7 in June. This is the third highest level recorded in July since 1995 (the highest was 125.9 in July 2011). Subprime 60+ day delinquencies rose to 3.13% in July from 2.90% in June. This represents an almost 8% MOM increase, though virtually unchanged YOY. Subprime ANL increased to 4.45% in July, up 17% versus June but 6% improved YOY.

The outlook for asset performance is stable in 2013 while the rating outlook is positive. Fitch upgraded 19 outstanding classes of prime auto ABS notes in 2013 year-to-date, compared to 23 upgrades issued in 2012 during the same period. Fitch's prime and subprime auto ABS indices are comprised of $67.7 billion of outstanding notes issued from 125 outstanding transactions. Of this amount, 69% comprise prime auto loan ABS and the remaining 31% subprime ABS.

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