NEW YORK--(BUSINESS WIRE)--The seasonably slow summer months are translating to notable increases in annualized losses and delinquencies for U.S. subprime auto loan ABS, according to the latest index results from Fitch Ratings. In contrast, prime auto ABS saw fairly stable performance last month, though the pace of losses is likely to increase as the fall approaches.
Subprime 60+ day delinquencies rose 13% month-over-month (MOM) in July to 4.59%, and were 17% higher versus a year earlier. This rate was still below the record peak 5.16% level recorded in early 2016. Subprime ABS annualized net losses (ANL) hit 7.39% in July rising 17% MOM, and were 28% higher year-over-year (YOY).
The summer months typically produce weaker asset performance as consumers head for vacation. Increased losses are emanating from weaker collateral pools in the 2013-2015 transactions, which have weaker credit quality including lower FICO scores, higher amounts of extended loan terms (over 60 months) and higher LTVs. Further, early defaults on extended term loans in pools are driving loss severity higher along with loss rates in 2016.
Prime delinquencies moved 12% higher MOM to 0.40% in July, and were 21% above July 2015. Prime ANL were at 0.48% last month, up nearly 20% YOY. Prime auto ABS continues to produce solid asset performance in 2016, supported by a surprisingly strong wholesale vehicle market which is benefitting from very robust truck and SUV values.
Used vehicle values continue to defy expectations in 2016 and remain healthy. The strength in the wholesale market diverges immensely by vehicle segment, with strength in larger vehicle segments while the car segment trails and values are currently depressed.
Despite this, Fitch expects used vehicle values will be pressured in the latter stages of 2016 and come down from current levels. Rising used vehicle supply, including from notable increases in residual returns expected in 2016 and early 2017, will constrain values and contribute to losses rising.
Ratings performance remains solid in 2016, with Fitch issuing 47 upgrades through mid-August versus 41 during the same period in 2015. Fitch's prime sector outlook for the remainder of 2016 is stable for asset performance even with losses expected to rise, and positive for the ratings outlook. The outlooks are both stable for the subprime sector.
Fitch's auto loan ABS indices track the performance of $93.5 billion of outstanding collateral, of which 60% is backed by prime collateral and remaining 40% subprime.
Additional information is available at www.fitchratings.com.