Subprime auto ABS annualized net losses reached 8.9% in August, 27% higher versus the same time a year prior, according to Fitch Ratings‘ latest monthly index, and subprime losses are predicted to pierce 10% by yearend.
Prime 60-day delinquencies were at 0.4% last month, 17% higher than the same time a year prior, according to the index, and annualized net losses hit 0.6% in August, up 11% year over year. Additionally, 60-day subprime delinquencies rose to 4.9% in August, up 22% year over year.
Factors driving performance include softening used-vehicle values, higher losses from the 2013 to 2015 vintage pools, which have marginally lower credit quality, and historical seasonal patterns during the fall months.
“Despite the current strength of the wholesale vehicle market, used-vehicle values will come under pressure from slowing consumer demand and rising supply in the latter part of the year and early 2017,” Fitch said. “This trend will slow auto ABS asset performance over the next 12 months.”
New vehicle sales dropped below 17 million units in August, and used supply is rising fast — driven by higher off-lease vehicles and trade-in volumes, Fitch said. That trend, combined with rising inventory levels and incentives, “will pressure used values going forward,” according to the release, and the industry can expect to see lower recoveries in auto ABS transactions as a result.
Fitch’s auto loan ABS index tracks the performance of $96.3 billion of outstanding collateral, of which 40% is backed by subprime collateral and 60% is backed by prime.
