U.S. auto lenders are likely to see subprime loan asset quality weaken in 2015, with annualized net losses (ANLs) above their historical averages of 6.24% recently reaching 8% before dropping to 7.26% as of the end of February. The level remains below the past Great Recession peaks of 9%-13%, according to Fitch.
Fitch predicts that subprime auto loan performance will continue to soften in 2015 due to heated competition-driving declines in loan pricing, easing underwriting standards and moderation in used car values.
These factors contribute to Fitch’s negative 2015 sector outlook for finance and leasing companies, but at this stage, the rating agency says they are manageable relative to available capital levels and current auto lender ratings. For auto ABS, asset performance remains in line with loss expectations and Fitch’s outlooks are stable for prime and subprime auto loan ABS performance.
Fitch observes that while manufacturers have been disciplined on new vehicle production and incentive spending, strong overall vehicle sales have kept the industry vulnerable to competitive pressures. It believes that loan demand is likely to remain strong amid improving economic indicators in the US, despite an increase in consumer indebtedness.
Fitch sees not only an easing of overall credit terms (inclusive of loan term, pricing and down payments), but also a decline in average FICO scores. These factors have led to increases in subprime lending and a rise in subprime auto ABS issuance during the past year.
About Ken Zino
Ken Zino, editor and publisher of AutoInformed, is a versatile auto industry participant with global experience spanning decades in print and broadcast journalism, as well as social media. He has automobile testing, marketing, public relations and communications experience. He is past president of The International Motor Press Assn, the Detroit Press Club, founding member and first President of the Automotive Press Assn. He is a member of APA, IMPA and the Midwest Automotive Press Assn.
He also brings an historical perspective while citing their contemporary relevance of the work of legendary auto writers such as Ken Purdy, Jim Dunne or Jerry Flint, or writers such as Red Smith, Mark Twain, Thomas Jefferson – all to bring perspective to a chaotic automotive universe.
Above all, decades after he first drove a car, Zino still revels in the sound of the exhaust as the throttle is blipped during a downshift and the driver’s rush that occurs when the entry, apex and exit points of a turn are smoothly and swiftly crossed. It’s the beginning of a perfect lap.
AutoInformed has an editorial philosophy that loves transportation machines of all kinds while promoting critical thinking about the future use of cars and trucks.
Zino builds AutoInformed from his background in automotive journalism starting at Hearst Publishing in New York City on Motor and MotorTech Magazines and car testing where he reviewed hundreds of vehicles in his decade-long stint as the Detroit Bureau Chief of Road & Track magazine. Zino has also worked in Europe, and Asia – now the largest automotive market in the world with China at its center.
