“Summertime Blues” predicted for US auto ABS

Losses and delinquencies improved again for US auto asset backed securities (ABS) last month, but the summer months are not likely to be as kind for the sector, according to the latest monthly index results from Fitch Ratings.

Prime and sub-prime auto loan ABS metrics displayed better results in May as delinquencies and losses declined. However, despite improvements over the past few months, Fitch believes auto ABS performance will slowly deteriorate again during the summer. The credit ratings agency says pressure on used vehicle values will increase and drive loss severity, while weaker credit quality in recent 2013-2015 vintages will move loss frequency higher.

Prime 60+ day’s delinquencies slowed to 0.30% in May, declining to the lowest level since May 2015. Annualized net losses (ANL) slowed by 12% month on month, reaching 0.40%. Delinquencies were flat year-over-year.

In the sub-prime sector, delinquencies improved nearly 2% month on month to 3.64%, though they are still 9% worse versus May 2015.

Fitch says the April collection/May reporting period has produced the strongest performance metrics of the year with consumers reaping the benefits of tax refunds using them to pay down debts. Looking ahead, performance metrics are likely to slow and losses to rise during the summer season.

The seasonal adjusted annual rate (SAAR) of new vehicle sales was 17.4 million units in May, down from the same period in 2015. Used vehicle demand remains fairly healthy but will continue to be pressured in 2016 from rising used vehicle supply. Gas prices have crept up over the past six weeks, which will support compact car vehicle values which may have hit a floor in May.

Overall, the used vehicle market was fairly active in May with prices stable. The Manheim Used Vehicle Value Index was higher, albeit by a small margin rising to 124.5 from 122.8 in April. The index was down by just over 1% from a year earlier.