While prime auto lease and loan asset-backed securitizations are projected to remain stable, Fitch Ratings Agency expects the outlook for subprime auto ABS to weaken.
In a 2019 consumer lending outlook, Fitch’s Senior Director of ABS Ian Rasmussen said subprime auto asset-backed securities are more vulnerable due to weaker borrower profiles and industry headwinds inflated by macroeconomic pressures.
Among them, consumer debt is at a record high $13.5 trillion as of Sept. 30, 2018, according to the New York Federal Reserve Bank. Auto loans account for 9% of that total. Additionally, rising interest rates may put pressure on consumers, which Rasmussen said “could push loss frequency higher in 2019.” Fitch predicts three interest rate hikes this year.
Rasmussen noted that these outside pressures will likely impact subprime — not prime — auto securities. “The smaller, deeper subprime lenders’ ABS transactions, which are not rated by Fitch, could be impacted to a greater degree, driving losses to record levels in 2019,” he told AFN in an email.
Fitch’s subprime auto ABS forecast parallels the rating agency’s waning auto finance outlook broadly. Michael Taiano, Fitch’s senior director of financial institutions, said that auto loan and lease sectors are also likely to be negatively affected by asset quality and rising interest rates.
