Stability was the word for the third straight month for U.S. prime auto ABS 60+ days delinquencies. Meanwhile, subprime auto ABS delinquencies hit an 11-year high, which possibly paves the way for a notably weaker fourth quarter, according to Fitch Ratings.
Prime auto ABS 60+ days delinquencies were at 0.71% in September, which is the third consecutive month the index was at this level with no deterioration. Delinquencies of 60 days or more on subprime auto loan ABS rose to an 11-year high of 4.28% in September, an indication of potentially further weakness to come in 4Q08, said Fitch
Inspite of the prime auto ABS' stable performance in September, the current climate is still "pressured and volatile," analysts from Fitch said.Consumer fundamentals are still stressed considering household debt levels and declining home values, as well as the deteriorating job market.
Aside from this, the U.S. economy is contracting and the stock market is adjusting itself lower, posting considerable drops in September and October. Thus, Fitch expects that the current state of the U.S. economy should translate into increased pressure on the performance of auto ABS over 4Q08, and ultimately result in higher loss rates in both the prime and subprime sectors.
The prime 60+ level of 0.71% is 9% higher compared with 2007, which is comparatively stable considering the fall months historically produce the year's weakest performance . As noted, subprime delinquencies sped up in September, increasing 18% from Augusts level, and were 40% above September 2007.
Annualized Net Loss (ANL) on prime auto ABS dropped 3% in September over August, to 1.68%, moving off the record high of 1.73% set in August. On an annual basis, ANL were 78% above 2007 levels after being 101% higher in August, but remain elevated and similar to levels exhibited in early 2003, which was the last recessionary scenario. Subprime ANL were at 7.80% in September, a 19% jump over August, while being 38% higher than a year earlier, according to Fitch.
The rating agency continues to closely monitor prime and subprime auto ABS performance on an ongoing basis. Its auto ABS indexes track roughly $59 billion worth of prime and subprime auto-loan ABS. Of this, 68% comprises prime collateral while the remaining 32% is made up of subprime collateral, the rating agency said.