Fitch: U.S. Auto ABS Losses Higher in July But Still on Track

NEW YORK--()--U.S. auto loan ABS delinquencies and losses climbed in July on a monthly basis, according to the latest monthly results from Fitch Ratings. However, Fitch expected such a movement and asset performance in the sector should moderate further in the remainder of the year but remain on track within initial loss expectations.

Prime and subprime annualized losses posted double-digit increases, while subprime delinquencies rose 5% year-over-year in July. This partly reflects typical seasonal patterns entering the weaker summer months, and the third consecutive month of softer used vehicle values.

Prime 60+ days delinquencies climbed 14% month-over-month in July to 0.33%, unchanged from July 2013. Prime annualized net losses (ANL) climbed 21% during the same period to 0.29%, marking a 6.5% improvement versus a year earlier. Current loss rates are low on a historic basis, with this year's peak ANL rate at 0.49% in February and 0.44% in 2013.

In the subprime sector, 60+ days delinquencies hit 3.28%, up 13.5% month-over-month. ANL climbed 34% to 4.96% in July to the same level recorded in March this year. July's loss rate was 11.5% higher than in July 2013 but below the peak 5.50% level for the month of July recorded back in 2005, which was a strong\period historically.

Despite recent headlines about looser underwriting standards and aggressive expansion by auto lenders in 2014, particularly in the subprime sector, asset performance remains on track and within Fitch's initial loss expectations. Fitch expects loss rates to climb through the end of 2014 driven by weakening used vehicle values and higher loss severity. However, Fitch believes asset performance will be in line with or will improve on the strong 2005-2006 period.

As expected, used vehicle values declined for the third consecutive month in July, as used vehicle supply continues to rise on an annual basis driven by higher off-lease and trade-in volumes relative to the last four years. The Manheim Used Vehicle Value Index was at 122.7, 1.5% above July 2013 and only slightly down from the peak 2014 level (124.9).

Used vehicle pricing is still strong on a historical basis in 2014, and the recent modest declines can be attributed to adjustments that were expected to occur earlier this year, according to Manheim. Despite this, Fitch is focused on the wholesale vehicle market in 2014 going into 2015, given the higher used vehicle volumes entering the market, and its potential impact on wholesale prices and loss levels.

Ratings performance is on track to post the highest number of upgrades going back to 2007 (95 upgrades), with 44 upgrades issued through July this year. Fitch expects this trend to continue in the remaining four months of the year as transactions amortize down and credit enhancement builds rapidly.

Fitch's indices track the performance of $76.5 billion of outstanding prime and subprime auto ABS. 64% of the index is comprised of prime auto ABS, and the remaining 26% subprime auto ABS.

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.
33 Whitehall Street
New York, NY 10004
or
Eugene Kushnir, +1 212-908-0830
Associate Director
or
Media Relations, New York
Alyssa Castelli, +1 212-908-0540
alyssa.castelli@fitchratings.com

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Contacts

Fitch Ratings
Hylton Heard, +1 212-908-0214
Senior Director
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Eugene Kushnir, +1 212-908-0830
Associate Director
or
Media Relations, New York
Alyssa Castelli, +1 212-908-0540
alyssa.castelli@fitchratings.com