NEW YORK--(BUSINESS WIRE)--Losses for U.S. prime auto loan ABS ticked up in May but overall asset performance in the sector remains solid, according to the latest index results from Fitch Ratings.
Auto ABS recovery rates were stable over the first five months of the year and continue to be supported by the ongoing strength in wholesale vehicle values in May, which were 5% above a year earlier despite rising supply coming into the market this year.
Prime 60+ day delinquencies crept 7% higher in May to 0.30% on a monthly basis but are within 2013 levels (just 3.4% higher). Annualized net losses (ANL) were virtually unchanged at 0.24% in May versus 0.22% in April. The rate was elevated versus May 2013. However, this is only due to the second lowest record rate of 0.17% set last year. In short, asset performance is strong in 2014 and improved versus the solid pre-recession 2005-2006 period.
The subprime sector posted solid results in May as losses came down while delinquencies stayed relatively stable. 60+ day delinquencies ticked up to 2.67% in May over April and were 3% below the rate in May 2013. ANL posted an unexpected 11% decline month-over-month to 3.48% in May. The rate was 10% better than a year earlier.
Solid consumer demand, low interest rates, stable vehicle incentive levels and healthy new vehicle pricing all combined to support wholesale values in May. Manufacturers appear to be conscious of over production in 2014 and staying in step with consumer demand for autos, which Fitch views as a positive seeing as used vehicle supply rise in 2014 over 2013 levels.
Solid new vehicle pricing combined with flat incentive spending in May had a positive knock-on effect on used vehicle values. This is a sign of consumers still looking for bargains in the market and thus looking to cheaper used vehicles. Used vehicle sales in 2014 have risen over 2013 levels and may be on track for a record this year, according to Manheim Consulting, which bodes well for auto ABS as demand stays healthy.
Ratings performance in 2014 is easily outpacing that of 2013. Fitch issued 36 upgrades through early late June this year, double the rate 18 in 2013. The rating outlook for the prime sector is positive for 2014, and Fitch expects positive rating actions to continue throughout the year.
Fitch's indices track the performance of $74.9 billion of outstanding prime and subprime auto ABS. 63% of the index is comprised of prime auto ABS, and the remaining 27% subprime auto ABS.
Additional information is available at 'www.fitchratings.com'.