Auto ABS performance will deteriorate slowly over the summer, according to Fitch Ratings.
Both prime and subprime metrics improved in May, however “pressure on used vehicle values will increase and drive loss severity, while weaker credit quality in recent 2013-2015 vintages will move loss frequency higher,” Fitch wrote in a report entitled ‘Summertime Blues Approaching for U.S. Auto ABS,’ released today.
Subprime 60+ day delinquencies improved 2% on a month-over-month basis, but are still up 9% from the same time a year ago. Subprime annual net losses were down in May to 6.52% — a 12% drop over April — but are 52% above the same time a year ago.
“The April collection/May reporting period has produced the strongest performance metrics of the year with consumers reaping the benefits of tax refunds using them to pay down debts,” Fitch wrote. “Looking ahead, performance metrics are likely to slow and losses to rise during the summer season. With tax season over, Fitch expects subprime ANL to climb to 6.50%-8% over the next four months.”
Prime delinquencies were down 12% in May to 0.3% — the lowest level since May 2015 – while ANL were down 12%, to 0.4%, according to Fitch.
Job growth slowed in May, which could be a “bad sign” for the coming months, according to the rating agency. However, the equities market continued to tick up with stock prices elevated, in part driven by strong fiscal support along with low interest rates and gas prices, Fitch wrote.
The rating agency did, however, upgrade 38 outstanding auto ABS tranches through early June, in line with the first six months of 2015. “Despite slower asset performance this year for both the prime and subprime sectors, Fitch has a stable asset performance outlook for the sector in 2016, while the ratings\outlook is positive,” the company wrote in the report.
