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Fitch: U.S. Auto ABS Performance Going Strong

August 5, 2013

NEW YORK — Despite a slight uptick in loss rates in June, U.S. auto loan ABS asset performance continues to be solid with historically low delinquency rates and loss rates at or near record lows, Fitch Ratings reported last week.

There are numerous macro factors that are helping to bolster auto ABS performance, including stable employment levels, the revival in the housing market, repaired household balance sheets and healthy used-vehicle values, and strong consumer demand for new and used vehicles. From a structural standpoint, performance of 2009-2012 vintage transactions has been better than expected.

In the prime sector, loans delinquent 60-plus days were 0.30 percent in June, virtually unchanged over the 0.29 percent recorded in May, and 25 percent lower on a year-over-year basis.

Prime annualized net losses were still within record low levels at 0.20 percent in June, despite rising from 0.17 percent the previous month. However, it was the second lowest level recorded this year. Prime cumulative net losses hit a new record low of 0.28 percent in June, just off of 0.29 percent posted in May, and down 24 percent year over year.

Subprime loans 60-plus days delinquent were up by 5.5 percent in June at 2.90 percent, compared to the 2.75 percent seen in May. June's level was 7.5 percent down year over year. Subprime annual net losses dropped to 3.80 percent in June from 3.84 percent in May, almost 3 percent better year over year.

Fitch predicted that asset performance for auto ABS is likely to soften as the fall approaches, following typical seasonal patterns, but historically will still be strong overall. The firm also said that the outlook for asset performance is stable in 2013, with a positive rating outlook. Fitch upgraded 18 outstanding classes of prime auto ABS notes in 2013 year to date, consistent with the first half of 2012.

The Manheim Used Vehicle Value Index crept up to 119.7 in June from 119.1 in May. Despite being down 8 percent year over year and softening for most of 2013, wholesale vehicle values are healthy in 2013, according to Fitch, and well above the historical average from 2011-2012 (114.0). This is helped to produce elevated recovery rates in auto ABS transactions and contain loss severity, and ultimately loss levels.

Strong new-vehicle sales have resulted in low inventories, which coupled with the availability of credit and low incentive levels are all supporting used-vehicle values mid-year, Fitch reported. Additionally, the recovering housing market is propping up demand and sales of trucks and SUVs in 2013. Used pickup truck values have risen almost 4 percent through June of this year vs. June 2012.

Fitch's prime and subprime auto ABS indices are comprised of $68.3 billion of outstanding notes issued from 125 outstanding transactions. Of this amount, 71 percent comprise prime auto loan ABS and the remaining 29 percent subprime ABS.

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