In a report released today, Fitch Ratings said that the wholesale vehicle market is exhibiting weakness because of factors such as a weak economy and a soft job market.
According to the Fitch report, loss severity in auto ABS is also under pressure because of lower used vehicle values and loan structure trends that include longer loan terms and higher loan-to-values. Fitch added that the expected health of the wholesale vehicle market serves as a good indicator of future loss severity levels and loss rates in U.S. auto ABS.
Recent analysis by the rating agency confirmed that there is an indirect, inverse relationship between wholesale vehicle values and annualized net loss (ANL) rates in auto securitizations. As wholesale vehicle values rise, auto ABS net loss rates dip, and vice-versa.
According to Fitch, the healthier the wholesale vehicle markets, the lower loss severity in auto deals with vehicle recovery rates increasing, and thus loss levels eventually go down.