CHICAGO--()--Fitch Ratings expects the recent pattern of easing U.S. auto loan underwriting standards to continue in 2013, and some further weakening in lender credit metrics will likely result. However, the trajectory of increased delinquencies and credit losses still appears modest and in line with our expectations.
We see signs of more relaxed auto credit terms in the Federal Reserve's January Senior Loan Officer Opinion Survey. The Fed reported that 13% of surveyed lenders eased credit terms for individual auto borrowers during the fourth quarter of 2012. This compares with a 23% figure in 3Q12, when a similar easing of standards was apparent. Competition appears to be centered on loan pricing, with 28% of surveyed lenders reporting that spreads over funding costs narrowed in the fourth quarter.
Credit losses and delinquency rates ticked up modestly in the fourth quarter of 2012, largely as a result of seasonality. Loss rates were up by 28 bps compared with the third quarter, while 30-day delinquency rates moved up by 63 bps for auto lenders reviewed in our analysis.
In the subprime space, competition between lenders is heating up. To a large extent, this reflects the impact of more aggressive loan pricing, as new entrants, some of which are backed by private equity capital, seek to boost market share quickly. New entry is also being supported by easier funding conditions, especially in ABS.
So far, we see changes in auto loan underwriting terms as generally modest, with new standards largely reflecting a normalization of market conditions rather than excessively aggressive pricing tactics. Continued robust demand for new and used vehicles and increased willingness to lend due to easy funding access, combined with expected moderation in used car values likely points to some deterioration in lender asset quality through 2013. Still, we expect the modest weakening in lender credit metrics to be manageable and consistent with current ratings.
For a complete discussion of recent developments in U.S. auto lending, see "U.S. Auto Asset Quality Review," dated Feb. 26, 2013, at www.fitchratings.com.
The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.
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U.S. Auto Asset Quality Review: 4Q12