July 30, 2013 / 1:06 PM / in 5 years

RPT-Fitch: Slight Loss Increase No Deterrent for Strong U.S. Auto ABS Performance

July 30 (Reuters) - (The following statement was released by the rating agency)

Despite a slight uptick in loss rates last month, U.S. auto loan ABS asset performance continues to be solid with historically low delinquency rates and loss rates at or near record lows, according to Fitch Ratings.

There are numerous macro factors that are helping to bolster auto ABS performance. Among them are: stable employment levels, the revival in the housing market, repaired household balance sheets and healthy used vehicle values including strong consumer demand for new and used vehicles. From a structural standpoint, performance of 2009-2012 vintage transactions has been better than expected.

In the prime sector, 60+ days delinquencies were 0.30% in June virtually unchanged over the 0.29% recorded in May, and were 25% lower year-over-year (YOY).

Prime annualized net losses (ANL) were still within record low levels at 0.20% in June despite rising from 0.17% in May. However, it was the second lowest level recorded this year. Prime cumulative net losses (CNL) hit a new record low of 0.28% in June, just off of 0.29% posted in May, and down 24% YOY.

Subprime 60+ days delinquencies were up by 5.5% in June at 2.90%, compared to 2.75% seen in May. June’s level was 7.5% down YOY. Subprime ANL dropped to 3.80% in June from 3.84% in May, almost 3% better YOY.

Asset performance for auto ABS is likely to soften as we approach the fall following typical seasonal patterns, but historically will still be strong overall. The outlook for asset performance is stable in 2013, with a positive rating outlook. Fitch upgraded 18 outstanding classes of prime auto ABS notes in 2013 year-to-date, consistent with the first half of 2012.

The Manheim Used Vehicle Value Index crept up to 119.7 in June from 119.1 in May. Despite being down 8% YOY and softening for most of 2013, wholesale vehicle values are healthy in 2013 and well above the historical average from 2011-2012 (114.0). This is helped to produce elevated recovery rates in auto ABS transactions and contain loss severity, and ultimately loss levels.

Strong new vehicle sales have resulted in low inventories, which coupled with the availability of credit and low incentive levels are all supporting used vehicle values mid-year. Additionally, the recovering housing market is propping up demand and sales of trucks and SUVs in 2013. Used pickup truck values have risen almost 4% through June of this year, versus June 2012.

Fitch’s prime and subprime auto ABS indices are comprised of $68.3 billion of outstanding notes issued from 125 outstanding transactions. Of this amount, 71% comprise prime auto loan ABS and the remaining 29% subprime ABS.

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