Losses and Delinquencies Up at Yearend 2016, S&P Says

Prime and subprime losses ended 2016 showing year-over-year increases by the end of December, according to S&P Global’s January U.S. Auto Loan Tracker.

Prime net losses were at 0.76% in December 2016, up from 0.58% at the same time a year ago — also up from 0.70% in November 2016. The year-over-year uptick is attributed to “a couple regional banks” upping their share of the prime index, according to S&P.

“Also, not only do these issuers have slightly higher losses than the more-established prime securitizers, but their 2015 securitizations are experiencing weaker performance than their 2014 deals,” Amy Martin, credit analyst at S&P Global, said in a release.

Subprime net losses, meanwhile, increased 76 basis points year over year to 8.52% in December 2016, up from 7.76% at the same time a year prior, and up from 8.44% in November 2016. The increase is due to lower recoveries and deep-subprime issuers upping their share of the subprime index as well.

The prime 60-plus-day delinquency rate increased as well, hitting 0.54% in December, from 0.48% at the same time a year prior. The delinquency rate in subprime also increased to 5.07% in December, from 4.81% at the same time a year prior.

“In the last quarter of 2016, we witnessed an acceleration in delinquencies, which is seasonal and to be expected,” the agency wrote in its report. “However, the year-over-year increases indicate that 2017’s losses could surpass last year’s levels.”

On the bright side, prime recoveries improved on a month-over-month basis in December 2016, according to the ratings agency. The rate for prime was up to 51.97% from 50.04% in the previous month. The subprime recovery rate increased to 39.94% in December, from 33.97% in the previous month. However, November’s low subprime recovery rate rate was “due to a large deal reporting a low recovery rate in its first month, which isn’t unusual,” S&P wrote.

After netting out transactions from Santander Consumer USA’s DRIVE platform, American Credit Acceptance Corp., and Exeter Finance Corp., modified subprime recoveries did improve — though at a slower pace. Modified recoveries were at 40.43% in December, up from 38.00% in November 2016.

“In our view, softening vehicle prices in the used-car market have affected recoveries, and we expect this to continue in the coming months,” S&P wrote. “Steady increases in the supply of off-lease vehicles are putting downward pressure on resale values. We also believe that longer loan terms and higher loan-to-value ratios have affected recoveries. These factors widen the gap between the loan outstanding amount and the vehicle value, thereby increasing loss severities.”