Fitch: U.S. Prime Auto ABS to be Solid in 2014 Even As Losses Rise

NEW YORK--()--Rising used vehicle supply will drive annualized net losses (ANL) for U.S. prime auto ABS to 0.50%-1% in 2014 (similar to 2005-2006 levels), according to Fitch Ratings. Despite losses trending higher, overall prime auto loan ABS asset performance is expected to be stable.

Off-lease vehicle volumes and trade-ins will increase in 2014, which will put pressure on used vehicle values and result in rising loss severity and lower recovery rates. This is in essence a continuation of the softening in used vehicle values seen in the latter half of 2013.

Nonetheless, the wholesale vehicle market is expected to remain healthy in 2014, as it slowly has come off the unsustainable highs seen in recent years and within range of more normal historical levels.

Prime auto loan ABS ended the year on firm footing in December even with delinquencies and losses rising marginally month-over-month (MOM). 60+ days delinquencies were at 0.36% last month, 9% above November but consistent with the end of third quarter 2013 (3Q'13) and 7.7% improved versus 2012. Delinquencies topped 0.43% in 2013 with a low of 0.29%.

ANL rose 4.8% in December to 0.44%, the highest rate in 2013 and 10% above December 2012. Despite this and softening used vehicle values in recent months, strong collateral in 2010-2012 transactions supported low loss levels throughout the year. On a historical basis, ANL averaged 0.33% in 2013 and 0.32% in 2012, the lowest years on record and well below the 1.13% average from 2001-2011.

The rating outlook is positive for prime auto loan ABS given where loss rates are currently tracking relative to initial expectations. The outlook is due in part to the expected number of subordinate classes for notes coming up for positive review in first half-2014 (1H'14). Fitch upgraded 44 classes of subordinate notes in 2013, 52% more than in 2012. Fitch is projecting positive rating actions to surpass 2013 levels this year.

In the subprime sector, 60+ days delinquencies dropped 4% MOM to 3.43% in December, and were 5.8% below December 2012. ANL exhibited improvement declining 7% MOM to 6.35% last month, and were 8% lower versus a year earlier.

Loss rates are slowly rising for subprime auto loan ABS given marginally weaker 2013 collateral pools securitized and softer used vehicle values. Fitch expects this trend to continue in 2014, though performance should remain in line with pre-crisis historical levels. The asset performance and rating outlooks for subprime auto loan ABS are stable for 2014.

Fitch's auto loan ABS indices track the performance of $72.91 billion of outstanding notes issued from 136 transactions, of which 65.3% comprise prime auto loan ABS and the remaining 34.7% nonprime.

Additional information is available at 'www.fitchratings.com'

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Contacts

Fitch Ratings
Hylton Heard, +1-212-908-0214
Senior Director
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
or
John Bella, Jr., 212-908-0243
Managing Director
or
Media Relations
Sandro Scenga, +1 212-908-0278
sandro.scenga@fitchratings.com

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Contacts

Fitch Ratings
Hylton Heard, +1-212-908-0214
Senior Director
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
or
John Bella, Jr., 212-908-0243
Managing Director
or
Media Relations
Sandro Scenga, +1 212-908-0278
sandro.scenga@fitchratings.com