Fitch: Prime U.S. Auto ABS Losses Down in December; Subprime Up 24% Year-Over-Year

U.S. auto ABS closed out a strong 2014 with losses down for both prime and subprime loans month-over-month, though subprime performance was worse year over year and bears close watch in the coming months, according to the latest index results from Fitch Ratings.

Auto loan ABS asset performance was buoyed by surprisingly healthier used vehicle values late in the year. Prime annualized net losses (ANL) declined month-over-month (MOM), ending 2014 on solid footing. Prime asset performance was very stable on a historic basis in 2014 with little volatility, even as loss rates crept higher.

Despite rising pressure from increased used supply last year, used vehicle values rose in December for the third straight month helping to contain loss rates during the third-quarter. The wholesale vehicle market also displayed little volatility in 2014 which supported stable asset performance.

Prime annualized net losses (ANL) declined 21% month-over-month (MOM) through December to 0.37%, and were 16% improved versus the same period in 2013. ANL ranged from 0.22%-0.49% in 2014, which was a tight range historically with no large swings during the year.

Prime 60+ day delinquencies rose 15% to 0.39% in December versus November, finishing the year 8% above December 2013. As with loss rates, there was little volatility throughout the year and rates ranged between 0.28%-0.40%.

Subprime ANL were at 7.84% posting a 1.5% decline over November. However, losses climbed 24% through year-end (YE) 2014 over YE2013. The increase was driven mainly by weaker collateral characteristics present in late 2013-2014 ABS pools, including marginally lower credit quality with softer FICO scores, higher loan-to-values and longer loan terms.

Subprime ANL ranged from 3.46% (May) to a high of 7.96% (November) in 2014. Additionally, volatility in the index jumped as loss rates shifted higher rising off of record low levels recorded in 2012-2013. Subprime 60+ day delinquencies moved up to 4.41% last month, 11% higher versus November and 29% higher on a yearly basis.

Despite weaker subprime asset performance during 2014, losses are currently forecasting within historical levels and are tracking below initial loss forecasts for Fitch-rated transactions. Fitch currently only rates two subprime platforms - General Motors Financial Company, Inc.'s AMCAR platform, and Santander Consumer USA, Inc.'s SDART platform.

Performance of the wholesale vehicle market was healthy in 2014, with the Manheim Used Vehicle Value Index rising the last three months of the year. The Index climbed 2.1% in third-quarter 2014 (3Q'14) over 2Q'14, ending the year at 123.9. The index was 1.8% stronger on a yearly basis at YE2014.

Auto manufactures continue to keep production levels in line with consumer demand for new vehicles going into early 2015. Manufacturers enjoyed solid new vehicle sales in 2014 without juicing sales to rental car companies or using high incentives, which dent used vehicle values. Further, certified pre-owned vehicle sales hit record levels in 2014 and were 10% stronger than in 2013.

Despite these positive trends, off-lease volumes and vehicle trade-in volumes rose notably throughout 2014. Fitch expects this trend to continue in 2015, and pressure loss severity in ABS transactions and push loss rates higher.

2014 produced robust ratings performance as Fitch upgraded 70 subordinate note classes, a 60% jump over 2013, rising to the third highest level since 2011 (79) and 2007 (95). Fitch's 2015 outlook for ratings performance continues to be positive.

Additional information is available on www.fitchratings.com.

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