After several months of strong performance despite various economic upheavals, auto ABS gains may soon level off, according to a report from Fitch Ratings.
Fitch Director Brian Vorderbrueggen stated in the report released today that regardless of solid credit fundamentals, the generally weak economy and the passing of the historically strong spring season might signal that auto ABS may be approaching its peak.
Tighter underwriting in 2009 and 2010 vintages, in addition to a robust used car market, was cited in the report as a major catalyst in the decline to near historic levels of auto ABS losses for May. Over the same period, delinquencies remained comparatively flat.
However, Vorderbrueggen said he expects ABS loss performance to increase from these lows as used car prices will likely begin to decline in the near future.
In May, annualized net losses (ANL) recorded a gain of 13% to reach 0.46%, marking its fourth straight monthly decline. However, the dip will be at a comparatively slower pace than previous months, which had seen drops of 20% to 25%, according to Fitch.
Data from the 60+ day delinquency index revealed only a slight change of 0.46% from April to May, and was 9.8% stronger than in May 2010. The firm also reported that delinquencies improved by nearly 10% from the same month in 2010, but were also at a slower rate.
Fitch said that certain factors, such as a decrease in gas prices and reduction in new vehicle inventory resulting from the natural disasters in Japan, should cause SUV and truck values to rise in the short-term.
Overall, Fitch predicted that auto loan ABS performance will be stable in 2011, with prime rating performance anticipated to remain positive throughout the year as well.
The rating agency did warn, however, that other persisting macroeconomic factors such as “volatile commodity prices, the ongoing European sovereign debt crisis, and a slowing U.S. economy” could cause uncertainty in asset performance in the near to intermediate future.