Prime recoveries fell to 50.3% in August, from 54.9% the same time a year prior, according to S&P Global.
“In our view, lower prime recovery rates have been due to myriad factors,” S&P wrote in its August U.S. Auto Loan ABS Tracker, including a 16% increase in off-lease vehicle volume this year to 3.6 million units, compared to 3.1 million last year; higher new vehicle incentives; longer loan terms; and higher LTVs on the 2015 and 2016 securitized loans.
Subprime recoveries, however, rose to 38.0% in August from 37.3% the same time a year prior.
Historically high delinquencies and losses are expected to continue to rise because of used-vehicle depreciation and the saturation of lenders, but those rises are not as “ominous” as reported in headlines, Kroll Bond Rating Agency said in its August report.
Additionally, prime net losses increased slightly month over month to 0.68% in August, but were constant on a year over year basis, according to S&P.
“The weaker month-over-month performance reflects higher losses on certain issuer’s 2016 securitizations as they season (TCF, Hyundai, CarMax, and California Republic Bank) and early-stage high losses on World Omni’s series 2017-A,” according to the report. But, despite losses trending slightly higher for some of the 2015-2016 transactions, credit enhancement as a percentage of the outstanding collateral amount has generally grown since those transactions closed.
Meanwhile, the subprime net loss rate increased to 7.95% in August from 7.38% in July, but decreased year over year from 8.35%. The decline was largely due to a high volume of new subprime auto loan ABS deals that have entered S&P’s composite since last year, which increased the outstanding balance of the collateral, S&P said in the report.
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