Fitch: Losses Less Than Half 2005-2006 Levels for U.S. Prime Auto ABS

U.S. prime auto loan ABS loss rates remain less than half of the level reached in one of the strongest historical pre-recession periods, according to the latest index results from Fitch Ratings.

Prime annualized auto losses were flat month-over-month (MOM) through June this year at 0.24% but remain far lower than the rates seen in 2005-2006. Annualized net losses (ANL) ranged from 0.52%-1.32% back in 2005-2006, while ANL were just 0.17%-0.49% in 2013-2014.

Fitch's prime auto loan ABS 60+ days delinquency index was at 0.29% in June, down one basis point (bp) from May, and were 3.3% improved versus a year earlier. Auto ABS loss rates are likely to creep up further through the end of the year as used vehicle values moderate as supply rises.

In the subprime sector, 60+ days delinquencies rose 8% to 2.89% in June and have averaged 3.09% in 2014 versus 3.26% in the whole of 2013. Subprime ANL crept up 7% on a monthly basis to 3.71% in June. This rate was 2.4% below June 2013.

The wholesale vehicle market softened slightly in June as used vehicle prices were slightly down over May. Overall, loss severity on defaulted and repossessed vehicles is low in 2014 as demand for used vehicles is strong and transaction prices above 2013 levels. Auto manufacturers remain focused on production levels in order to match supply with consumer demand and not overproduce, while incentive levels are down in 2013 versus 2014, supporting the values of used vehicles.

Fitch continued to upgrade subordinate notes in June. For the year, Fitch has upgraded 44 notes through late July versus just 19 in 2013. Solid asset performance coupled with rising credit enhancement has contributed to rising loss coverage resulting in the increase of positive ratings actions in 2014.

Fitch's indices track the performance of $77.1 billion of outstanding prime and subprime auto ABS. 65% of the index is comprised of prime auto ABS, and the remaining 25% subprime auto ABS.

Additional information is available at 'www.fitchratings.com'.

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