Weakening credit quality and falling prices on used-car values will cause some summertime blues in existing auto asset-backed portfolios this summer, predicts Fitch Ratings.

The worsening conditions will occur despite recently improving delinquency rates and ABS performance metrics during the April collection/May reporting period, which Fitch attributed to an influx of tax refunds that consumer used toward debt payments.

Delinquencies over 60 days in prime loans was down 0.3% in May and annualized net losses slowed by 12% month-other-month to 0.4%. For subprime, delinquencies improved by 2% to finish May at 3.64%, although that is still 9% worse than the year-over-year comparison to May 2015.

Subprime annualized losses dropped 12% to 6.52% between April and May, but are still 52% above the level recorded a year ago.  

“Looking ahead, performance metrics are likely to slow and losses to rise during the summer season,” according to Fitch in a release issued Monday.

Fitch’s U.S. auto ABS indices of prime and subprime car loans cover $103 billion of outstanding collateral (63% prime, 37% subprime), or just 6.2% of prime and 3.6% of subprime loans amid a total auto lending market of $1.1 trillion. The ratings agency has upgraded 38 outstanding auto ABS tranches so far in 2016, which it says is in line with the first-half performance of 2015.

Used-vehicle prices were stable in May, rising slightly on the Manheim Used Vehicle Value Index to 124.5 from 122.8 in April. Used car demand also remains “fairly healthy” but that will continue to be pressured from the rising supply of used vehicles.

Fitch predicts subprime annualized net losses will climb to between 6.5% and 8% over the next four months, under weakening demand as well as economic clouds of slowing job growth that could reflect in slower economic activity this summer.

Compact cars remained the weakest vehicle segment in May as consumers gravitated toward larger SUV and truck models amidst low gas price. Fitch noted rising fuel costs may support increased values for smaller cars after hitting a floor last month. The report did not indicate potential impacts on larger-vehicle pricing if fuel prices continue to move up.   

New car sales of 17.4 million in May is down from the same period in 2015.

The outlook for the industry remains positive.

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