Losses for U.S. prime auto loan asset backed securities and subprime ABS increased in May as strong used care values propped up the results. Fitch Ratings says that auto ABS recovery rates were stable over the first five months of the year and continue to be supported by the ongoing strength in wholesale vehicle values in May, which were 5% above a year earlier. Prime 60+ day delinquencies were 7% higher in May to 0.30% on a monthly basis but are allegedly within 2013 levels at 3.4% higher. Annualized net losses (ANL) were unchanged at 0.24% in May versus 0.22% in April. The rate was elevated versus May 2013. Fitch says this is only due to the second lowest record rate of 0.17% set last year.
The conclusion, from the people who rated junk mortgage securities as prime, the underlying cause of the Great Recession, is that asset performance is strong in 2014 and improved versus the pre-recession 2005-2006 period when the real estate bubble was inflating.
The subprime sector in May saw losses decrease while delinquencies stayed relatively stable as 60+ day delinquencies increased to 2.67% in May over April or 3% below the rate in May 2013. Annualized net losses showed an unexpected 11% decline month-over-month to 3.48% in May. The rate was 10% better than a year earlier.
Solid consumer demand, low interest rates, stable vehicle incentive levels and increased new vehicle pricing all combined to support wholesale values in May. Flat incentive spending in May also had a positive effect on used vehicle values. This is a sign of consumers still looking for bargains in the market and thus looking to cheaper used vehicles. Used vehicle sales in 2014 have risen over 2013 levels and may be on track for a record this year, according to Manheim Consulting, which bodes well for auto ABS as demand stays healthy.
Ratings performance in 2014 is easily outpacing that of 2013. Fitch issued 36 upgrades through early June this year, double the rate 1of 8 in 2013. The rating outlook for the prime sector is positive for 2014, and Fitch expects positive rating actions to continue throughout the year.
Fitch’s indices track the performance of $74.9 billion of outstanding prime and subprime auto ABS. 63% of the index is comprised of prime auto ABS, and the remaining 27% subprime auto ABS.
