- Extensions in March on auto loan ABS fell back to pre-pandemic levels, declining to 0.34% and 1.80% for public prime and subprime transactions, respectively.
- Our newer analysis that tracks extensions by the month in which the first 2020 extension was granted revealed that the April prime and subprime cohorts (the peak month of extensions) have incurred 2.4% and 9.0% in cumulative charge-offs (on a unit basis), respectively.
- Cumulative charge-offs on all loans extended since March 2020 (regardless of the month in which the loan was extended) total 2.25% and 7.18% in prime and subprime, respectively.
- Texas reported higher extension levels in March relative to February, increasing to 0.78% and 2.98% in prime and subprime, respectively, from 0.65% and 2.89%.
In March 2021, extensions on auto loans in public asset-backed securities (ABS) fell to levels consistent with those of early 2020 before the economic fallout from the pandemic, when they were a fraction of March 2020's levels when lenders started to provide pandemic-related concessions. For the public prime pools we track using Reg AB II loan level data, the monthly average extension rate decreased 6 basis points (bps) to 0.34% from 0.40% in February and 3.75% in March 2020; and for public subprime pools, it dropped 60 bps to 1.80% from 2.40% in February and 6.82% in March 2020 (see chart 1). We attribute the improvement to the latest round of stimulus checks that were paid in March and the continued economic recovery, as well as to the boost from tax refunds. In March, 770,000 jobs were added, and unemployment decreased slightly to 6.0% from 6.2%.
Public prime extensions are now lower than January 2020's 0.40% and only slightly higher than February 2020's 0.32%, while public subprime extensions are also lower than January 2020's 2.00%, but somewhat higher than February 2020's 1.53%.
Almost all of the prime public issuers reported lower extension rates in March 2021 compared with February 2021 (see chart 2A). CRART and Ford reported increases of 21 bps and 7 bps, respectively), while Nissan reported the largest decrease of 16 bps (to 0.43% from 0.59%). With March's improved levels, all of the prime issuers have deferral levels that are a fraction of those of a year earlier (see chart 2B). There are no year-ago data on Carvana's extension levels since its public prime deal is only a few months old.
Specifically (excluding Carvana):
- CRART had the highest March 2021 extension level of 1.01%, and the second-highest year-over-year decline of 668 bps from 7.68%. It was also one of the few issuers to see a month-over-month increase of 21 bps from 0.80%.
- Ford had the second-highest March 2021 extension level of 0.95%. Ally had the third-highest March 2021 extension level of 0.49%, but the largest decrease in year-over-year extension levels of 11.53 bps from 12.01%.
All 15 subprime issuers (including public and 144a issuers) granted fewer extensions in March than in February by an average of 51 bps (see chart 3A). Measured year over year, only Avid showed an uptick in extensions, albeit by only 4 bps.
- Westlake and Avid had the highest extension rates in March 2021 at 4.18% and 3.47%, respectively.
- World Omni Select had the highest year-over-year decline in extensions of 1,343 bps, to 1.28% from 14.72%, followed by Westlake, with a decline of 755 bps, to 4.18% from 11.73%.
Percentage Of Loans In Active Extension Status Decreased In March
The percentage of prime and public subprime loans remaining in extension status continued to decline to 0.51% and 3.53%, respectively, from 0.60% and 4.54% (see charts 4 and 5).
- Ford Credit and CRART had the highest percentage of loans in extension status of their prime peers with 1.53% and 1.01%, respectively.
- Carvana 2020-P1 and CapOne had the lowest percentages of 0.10% and 0.08%, respectively. Carvana 2020-P1 is in only its fifth reporting month, so we expect its extension levels to be low.
- In subprime, among the four public issuers, Exeter had the highest percentage of loans in extension status of 4.82% (down slightly from 4.92% in February). Exeter's data in chart 5 include only one transaction: 2020-3. This was its first public transaction, and through March, it had seven months of performance. World Omni Select had the lowest extension level of 2.07% (down from 2.29%).
Vintage Charge-Off Data On Extended Loans Reveals Important Insights
This is the second month we have tracked extended loans (extended since January 2020) by the month in which they received their first extension, and each of these months represents a cohort, such as January 2020, February 2020, etc. If a loan's first extension in 2020 was in April and it subsequently received another extension, the loan remains in the April extension cohort.
After defining the cohorts, we tracked the percentage of these extended loans that have been charged off (by count). The analysis revealed the following:
- Loans extended in March and April of 2020 have had a lower cumulative default rate than the loans extended in January and February of the same year. For prime auto loans, through month 11, the January and February extended loans have had cumulative charge-offs of 4.9% and 5.7%, respectively, while those loans receiving their first extension in March or April have had cumulative charge-offs of 1.9% and 2.4%, respectively (see chart 6).
- For subprime, through month 11, the January and February 2020 extended loans have taken 10.0% and 10.4% in charge-offs, respectively, while those receiving their first 2020 extension in March or April have had cumulative charge-offs of 7.6% and 9.0%, respectively (see chart 7).
- Loans receiving their first 2020 extension in May and June, however, have experienced higher charge-off rates. For prime auto loans, through month nine, these cohorts of extended loans have had 3.4% and 3.8% in charge-offs, respectively, compared with only 1.4% and 1.9% for the March and April vintages, respectively, at the same seasoning point.
- For subprime, loans receiving their first 2020 extension in May and June have had cumulative charge-offs of 10.2% and 10.9%, respectively, through month nine versus only 5.4% and 6.8% for the March and April vintages, respectively.
We believe the lower rate of charge-offs on loans that had a pandemic-related extension in March or April as compared with those in January or February is due to some of the COVID-19 deferrals being granted to obligors as a customer-service gesture given the economic and health crisis our nation was facing at the time, regardless of whether the obligor had actually lost his/her job. This was especially the case among some prime lenders. In other cases, where the extensions were granted to provide temporary hardship relief for those who had lost or left their jobs, most of those individuals subsequently received stimulus checks, enhanced unemployment pay, or returned to work, which limited the extent to which those extensions became charge-offs. In contrast, loan obligors who received extensions before the pandemic were already incurring financial hardship, and the COVID-19-related business shutdowns only exacerbated an already bad situation, leading to relatively higher charge-offs for the January and February cohorts.
It's difficult to ascertain why the subprime loans receiving their first 2020 extension in later months (such as May and June) have had higher charge-offs than those receiving their first extension from January to April 2020 cohorts, but some reasons may include: the accounts were more severely delinquent at the time of such extension; the individuals' job losses were more permanent in nature; or the individuals left the work force and no longer had the means or willingness to pay their auto debt. The higher charge-offs could also indicate that extensions granted early during a financial setback are more successful in "saving" the account than those offered during the later stages of financial hardship.
It's important to note that the number of extensions skyrocketed in March/April and then fell dramatically, so the denominator used to measure the charge-off rate dropped significantly in later months. Similarly, the number of charge-offs related to May and June extensions fell substantially relative to the charge-offs from loans extended in March and April. The magnitude of these charge-offs is visible in charts 8 and 9.
Charts 8 and 9 below plot each cohort's cumulative charge-off rate through March 2021 against its extension rate, while the size of the bubble indicates the number of charge-offs associated with that cohort. For example, the prime April cohort had an extension rate of 5.76% (the peak month of extensions since the pandemic started), and of these 2.37% have charged off through March 31, 2021. Given the high number of extensions in April, this cohort, unsurprisingly, has had a high number of charge-offs (almost 5,300 through March 2021), as reflected by the size of the bubble. In contrast, the January, February, May, and June cohorts all had lower extension rates, and thus have had a lower number of charge-offs (as reflected by the size of their bubbles), even though their cumulative charge-off rates have exceeded those from the March and April cohorts.
For public subprime auto loan ABS, extensions reached their peak in April at 15.75%, and this cohort through March 31, 2021, has experienced cumulative charge-offs of 8.96%. While the charge-off rate itself remains well below that of the more seasoned January and February cohorts (13.33% and 12.76%, respectively), the actual number of charge-offs among the April extended loans is much higher (almost 16,500, compared with only 3,500 and 2,400 or so for January and February, respectively).
Previously Extended Loans Continue To Perform
Looking at the universe of extended loans from March 2020 through March 2021, we've observed the following for the prime segment. Of those loans that have been extended since March, 76.99% are in repayment status, 17.28% have prepaid or matured, 3.24% are still in active extension status (down from 4.03% in February), 2.25% have charged off, and 0.24% have been repurchased.
- Prime issuers with the highest levels of charge-offs on their previously extended loans were VW (3.65%), Hyundai (3.35%), and CarMax (3.33%). VW continues to have the highest charge-off rate on extended loans because it recognizes losses earlier than its peers (at 90 days delinquent). Most other lenders recognize a loss once an obligor is either 120-150 days delinquent or in the case of a repossession, 60-90 days thereafter, which could, in rare cases, take the charge-off out to 210 days delinquent.
- Prime issuers with the lowest levels of charge-offs on previously extended loans were BMW (0.47%), USAA (0.61%), and Honda (0.85%),
- Prime issuers with the highest percentage of previously extended loans still in extension status are GMF (8.72%), Ford (8.50%), and USAA (5.56%). Ally, which had been the most liberal of its prime peers offering extensions during the early months of the pandemic, has only 1.86% of previously extended loans still in extension status. Furthermore, only 1.81% of its extended loans have charged off, which is below the prime average of 2.25%.
Within the public subprime segment, of those loans that have been extended since March, 74.87% were in repayment, 8.03% remain in active extension status (down from 10.60% in February), 9.85% have matured or prepaid, 7.18% have charged off, and 0.07% have been repurchased.
- DRIVE had the highest percentage of extended loans that have charged off of 9.35%, as its pools experience higher losses than those of its public peers.
- World Omni Select has had the lowest percentage of charge-offs on previously extended loans (4.46%). AmeriCredit was close behind (5.06%).
Number Of Payments Received On Previously-Extended Loans Grows
The average number of full payments that have been made on prime loans extended since March 2020 increased in March 2021 to 5.0 from 4.5 the prior month. In subprime, the number of payments rose to 3.7 from 3.3 in February.
In terms of methodology, chart 12 tracks the number of full payments made on loans extended since March. We count the number of payments from the first month for which the respective loan was granted an extension. For example, if a loan was given an extension in March and subsequently another extension in July, we count the number of months for which full payments were received since March.
Additional trends include:
- Those issuers receiving the greatest number of payments through March were CapOne (5.88), California Republic (CRART; 5.80), and World Omni (5.80).
- In subprime, DRIVE, World Omni Select, and SDART have received the most payments of 4.02, 3.85, and 3.76, respectively.
Extensions By State
In prime, the states with the highest extension rates on a dollar basis for March were Texas (0.78%), Oklahoma (0.61%), and Louisiana (0.44%). The only state in the top 10 that reported a meaningful increase from February was Texas, which rose 13 bps from 0.65%. We indicated last month that we were surprised that Texas' extensions were down in February from 0.70% in January despite the power outages in the state caused by freezing temperatures, as well as the spike in their heating costs. It seems that this occurrence affected its March performance, but only to a slight degree.
The Puerto Rico and Guam territories actually had the highest extension rates for the month of 2.08% and 2.05%, respectively. However, in the case of Puerto Rico, this represents two loans out of a total of 171, and in the case of Guam, one loan out of 58.
Texas also had the highest state extension rate in subprime of 2.98%, up from 2.89% in February, followed by Washington D.C. (2.82%) and Wyoming (2.11%). Guam had the highest overall extension rate of 3.95%, but this represented eight loans out of 239.
Given that extension rates have fallen to pre-pandemic levels, we are reducing the publication frequency of this report. We expect to publish the next one in August, which will cover extension performance through June.
The data provided for most of the statistics in this article were generated from the Reg AB II loan-level filings, whether or not the underlying deals were rated by S&P Global Ratings. For most issuers, the data period covered begins in 2017 and extends through first quarter 2020. We've reported the information as presented in the issuers' loan-level filings, which may have variances in reporting methodology month to month and may differ from the issuers' monthly servicing report data. In addition, the loan-level data track all extensions, not just COVID-19-related extensions, which is what some issuers are reporting on their monthly servicing reports.
S&P Global Ratings believes there remains high, albeit moderating, uncertainty about the evolution of the coronavirus pandemic and its economic effects. Vaccine production is ramping up and rollouts are gathering pace around the world. Widespread immunization, which will help pave the way for a return to more normal levels of social and economic activity, looks to be achievable by most developed economies by the end of the third quarter. However, some emerging markets may only be able to achieve widespread immunization by year-end or later. We use these assumptions about vaccine timing in assessing the economic and credit implications associated with the pandemic (see our research here: www.spglobal.com/ratings). As the situation evolves, we will update our assumptions and estimates accordingly.
- U.S. Auto Loan ABS Tracker: March 2021 Performance, May 21, 2021
- Loan Deferrals In U.S. Auto Loan ABS Reach Their Lowest Levels Since COVID-19 Began; Deeper Dive Into Charge-Offs On Extended Loans, April 26, 2021.
- January Fiscal Stimulus Led To Lower Loan Deferrals In U.S. Auto Loan ABS, March 9, 2021
- The Majority Of December's Delinquent Loans In U.S. Auto Loan ABS Had Received A COVID-19-Related Extension, Feb. 23, 2021
- Higher COVID-19 Infection Rates Played A Role In Higher November U.S. Auto Loan ABS Extensions In Some States, Jan. 25, 2021
- U.S. Auto Loan ABS Extension Patterns Continued To Deviate In October: Prime Deferrals Declined, But Subprime Deferrals Rose For The Second Straight Month, Dec. 17, 2020
- U.S. Auto Loan ABS Extension Patterns Diverged In September: Deferrals On Prime Loans Declined, But Rose On Subprime, Nov. 12, 2020
- U.S. Auto ABS Experienced A Dramatic Reduction In Loans In Extension Status In August, But Delinquencies Continued To Rise, Oct. 22, 2020
- Pace Of New U.S. Auto Loan ABS Extensions Continued To Decline In July, But Delinquencies Inched Up, Sept. 22, 2020
- To Pay Or Not To Pay: Navigating Through U.S. ABS Auto Loans As They Roll Off Extension Status, Aug. 14, 2020
- Though Still Elevated, Drops In May Extensions Are The First Signs Of A Possible Road To U.S. Auto Loan ABS COVID-19 Recovery, July 16, 2020
- Will Spring U.S. Auto Loan Extensions Bring Summer Payments? June 4, 2020
- While Stay-At-Home Orders Clear Traffic, U.S. Auto Loan Extensions Rise, April 30, 2020
The authors would like to thank Bushra Dawawala for her research contributions to this report.
This report does not constitute a rating action.
|Primary Credit Analysts:||Amy S Martin, New York + 1 (212) 438 2538;|
|Timothy J Moran, CFA, FRM, New York + 1 (212) 438 2440;|
|Secondary Contact:||Deegant R Pandya, New York + 1 (212) 438 1289;|
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