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Attorney Eric Johnson and Allen Denson of Hudson Cook discuss regulatory issues at the recent National Alliance of Buy-Here, Pay-Here Dealers conference.

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Auto Finance Remains Strong, But Concerns Increase Featured

Delinquencies and losses on prime auto loan ABS remained historically low through June, despite slow growth in the U.S. economy, according to Fitch Ratings.

Most economic factors that affect ABS asset performance are stable, while healthy used-vehicle values have supported performance metrics during the second quarter of 2016. However, used-car values will decline and pressure asset performance over the next 12 months.

Prime 60-plus days delinquencies were at 0.36 percent in June, up marginally from 0.3 percent recorded the prior month, and were 15 percent higher year-over-year. Despite the increases, delinquencies are low relative to the past 10 years of performance, and well below the peak levels in 2008-10.

Prime annualized net losses (ANLs) rose by 18 percent month over month to 0.47 percent, but were significantly below the historical index average of 0.91 percent. ANLs were 36 percent higher in June versus a year earlier.
Over the past year, losses have risen from record low levels, and are still below the strong 2005-06 period, when ANLs ranged from approximately 0.5 percent to 1.3 percent.

In the subprime sector, 60-plus days delinquencies shifted higher month-over-month to 4.07 percent, and were 11 percent above the same period in 2015. The peak level recorded in 2016 was 5.16 percent in February, and delinquencies dipped as low as 3.64 percent in May.

Subprime ANLs fell in June to 6.32 percent over the prior month, but were 16 percent higher year-over-year. Fitch expects subprime ANLs to rise in the second half of the year, driven by weak collateral credit quality in 2013-15 vintage securitized pools and pressure on wholesale vehicle values, which are expected to pressure recovery rates.

Fitch issued 25 upgrades on outstanding subordinate classes of prime and subprime notes through the first half of the year, compared with 37 during the same period in 2015. Fitch expects the current pace of upgrades in 2016 to continue during the second half of the year, given current expectations on asset performance.

Last modified on Wednesday, 10 August 2016 15:32
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