Despite the different negative indicators, U.S. auto ABS delinquency and annualized net losses (ANL) improved at a time of the year when performance usually starts to deteriorate, Fitch Ratings said.
The 60+ day delinquencies on U.S. prime auto loan ABS dropped 10.7% while ANL levels dipped 5.4%, this despite elevated unemployment rates as well as declining consumer credit.
"Despite the temporary improvement in performance, we are entering the weakest performance period of the year,’ said Fitch Senior Director Hylton Heard. ‘Given the continued slide in consumer credit, elevated unemployment and tempering of vehicle value increases, losses and delinquencies should remain at higher levels through January 2010.’
The drop in prime auto ABS delinquencies to 0.75% is equal to the rate a year before. Loss levels benefit from improved recovery performance as vehicle values are still at elevated levels. With this latest decrease, prime ANL through October stands at 1.57%.
Fitch expects ANL will rise over the seasonally weaker winter months as well as approach the 2% level.
Loss severity is now moderated by strong used vehicle values, slowing 2009's loss rates. Reduced supply in the used car market, aside from other factors, is still supporting rising used vehicle values this year. The Manheim Used Vehicle Value Index, which tracks the health of the wholesale vehicle market, posted a slight drop in October, although values are still almost 20% higher compared with their December 2008 lows.
Declining asset performance has not affected rating performance, with senior level bonds continuing to perform as expected. Fitch has upgraded 31 classes of notes through Oct. 31 of this year, compared with 33 over the same period in 2008.
The rating agency's indexes track the performance of over 100 transactions worth $65.3 billion in prime and subprime auto ABS.
Prime loans comprise 84%, and subprime loans the remaining 16%, according to Fitch.