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U.S. Auto Loan ABS Tracker: July 2021 Performance

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U.S. Auto Loan ABS Tracker: August 2021 Performance

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U.S. Auto Loan ABS Tracker: July 2021 Performance

U.S. auto loan ABS performance in July demonstrated the fading benefit of economic stimulus as it marked the second consecutive month of rising delinquencies and losses, as well as lower recovery rates. In addition, subprime extension rates rose for the third consecutive month. The march toward normalization, however, will likely take several months, as delinquencies and losses remain near record-low levels and economic fundamentals are supportive of strong used vehicle values through the end of the year.

Losses Rose For The Second Consecutive Month, But Remained Lower Than Historical Levels

Prime and subprime net losses increased slightly month over month, but remained near historically low levels. Prime net losses came in at 0.09% for July from 0.06% in June, but were down from 0.38% in July 2020. Subprime losses increased to 2.71% for July from 2.14% in June, but were down from 3.16% in July 2020 (see table 1 and chart 1). Despite a month-over-month rise in losses, both the prime and subprime segments were at their third-lowest loss levels after May and June 2021.

Table 1

Net Loss Rate Composite(i)
Jul-12 Jul-13 Jul-14 Jul-15 Jul-16 Jul-17 Jul-18 Jul-19 Jul-20 Jun-21 Jul-21
Prime (%) 0.33 0.36 0.48 0.50 0.58 0.62 0.50 0.55 0.38 0.06 0.09
Subprime (%) 4.92 5.62 6.39 6.70 8.01 8.44 7.81 8.21 3.16 2.14 2.71
Subprime modified (%)(ii) 4.39 5.26 5.70 5.87 6.44 6.83 6.18 6.37 2.96 1.85 2.14
(i)Represents monthly annualized losses. (ii)Three large deep subprime issuers--American Credit Acceptance, Exeter, and DRIVE--are excluded.

Chart 1

image

Recoveries Have Started To Retreat From Historical Highs

Prime recoveries decreased to 91.41% in July from 98.79% in June, but increased from 63.42% in July 2020 (see table 2 and chart 2). Almost 90% of the outstanding auto loan ABS reported a month-over-month decline in recovery rates by an average of approximately 26%.

Table 2

Recovery Rate Composite(i)
Jul-12 Jul-13 Jul-14 Jul-15 Jul-16 Jul-17 Jul-18 Jul-19 Jul-20 Jun-21 Jul-21
Prime (%) 67.77 64.39 57.98 59.28 57.62 57.59 59.71 58.50 63.42 98.79 91.41
Subprime (%) 44.73 45.11 45.44 43.50 39.72 37.18 40.33 42.25 60.10 65.70 59.71
Subprime modified (%) (ii) 53.26 45.36 46.30 44.53 40.38 38.05 41.23 42.51 55.99 62.48 59.61
(i)Represents monthly recovery rates. (ii)Three large deep subprime issuers--American Credit Acceptance, Exeter, and DRIVE--are excluded.

Chart 2

image

Subprime recoveries decreased to 59.71% in July from 65.70% in June and were down slightly from 60.10% in July 2020. Recoveries were down month over month for 10 of the 16 issuers, with recoveries up month over month for the remainder.

Lower recoveries were consistent with the Manheim Used Vehicle Value Index, which reported a 2.4% decline month to month. Even so, the index stood 23.5% higher than a year earlier.

S&P Global Ratings assumes that recovery rates will revert to historical levels when determining its expected cumulative net loss (ECNL) levels.

Delinquencies Still Lower Than Last Year Despite A Slight Uptick Month Over Month

The prime 60-plus-day delinquency rate increased slightly to 0.27% in July from 0.25% in June, but was below 0.32% in July 2020 (see table 3 and chart 3). The subprime 60-plus-day delinquency rate increased to 3.16% in July from 2.98% in June, but was down from 3.22% in July 2020. The last time subprime delinquencies were this low for July was in 2012 (3.12%), when the industry was just beginning to recover from the Great Financial Crisis and before newly formed subprime players ramped up their origination volume.

Table 3

60-Plus-Day Delinquency Rate Composite(i)
Jul-12 Jul-13 Jul-14 Jul-15 Jul-16 Jul-17 Jul-18 Jul-19 Jul-20 Jun-21 Jul-21
Prime (%) 0.39 0.35 0.40 0.41 0.45 0.44 0.40 0.41 0.32 0.25 0.27
Subprime (%) 3.12 3.26 3.93 4.08 4.90 4.96 5.00 5.25 3.22 2.98 3.16
Subprime modified (%)(ii) 2.35 3.08 3.43 3.46 3.75 3.61 3.56 3.75 2.45 1.91 2.09
(i)Represents 60+ day delinquencies. (ii)Three large deep subprime issuers--American Credit Acceptance, Exeter, and DRIVE--are excluded.

Chart 3

image

We expect delinquencies to rise in coming months, especially in subprime, due to the waning benefit of economic stimulus checks, the expiration of enhanced unemployment benefits, and the lifting of eviction moratoriums. Additionally, according to the New York Fed Consumer Credit Panel, subprime origination volumes grew significantly during the second quarter ($35.2 billion) and approached or surpassed the levels observed during the second quarter of 2015 and 2016 ($37.6 billion and $33.6 billion, respectively), which were periods characterized by high volume, intense competition, and relaxed underwriting standards. Delinquencies and losses often rise after periods of high growth, especially if those metrics are as low as they are presently.

Subprime Extensions Rose For The Third Consecutive Month

Subprime extensions experienced an uptick from June, while prime extensions remained constant at 0.34%. Subprime extensions, including public and Rule 144a transactions, increased to 3.03% in July from 2.69% in June (see tables 4 and 5 and chart 4). The public subprime issuers reported extensions of 2.02% for the month (up from 1.85%), which is consistent with January 2020's level and higher than February 2020's level of 1.53%. Meanwhile, the 144a issuers deferred 3.94% on average (up from 3.46%), which was below January 2020's level (4.48%), but higher than February 2020's (3.38%). It marked the third consecutive month of higher extensions for subprime auto ABS.

Table 4

Extensions (%)
Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20 Oct-20 Nov-20 Dec-20
Prime extensions--Reg AB II issuers (%) 0.40 0.32 3.75 5.76 2.16 1.39 0.86 0.63 0.55 0.52 0.55 0.73
Subprime extensions--Reg AB II issuers (%) 2.00 1.53 6.82 15.75 8.90 7.66 5.29 3.22 3.65 3.78 4.06 4.84
Subprime extensions--144a issuers (%)(i) 4.48 3.38 6.24 9.76 5.97 3.47 3.11 3.16 3.57 3.88 4.33 5.04
Subprime extensions--Reg AB II issuers plus 144a issuers (%)(i) 3.22 2.47 6.52 12.62 7.35 5.31 4.06 3.19 3.60 3.83 4.21 4.95
Jan-21 Feb-21 Mar-21 Apr-21 May-21 Jun-21 Jul-21
Prime extensions--Reg AB II issuers (%) 0.46 0.40 0.34 0.24 0.27 0.34 0.34
Subprime extensions--Reg AB II issuers (%) 3.50 2.40 1.80 1.17 1.49 1.85 2.02
Subprime extensions--144a issuers (%)(i) 4.14 3.31 2.65 2.05 2.96 3.46 3.94
Subprime extensions--Reg AB II issuers plus 144a issuers (%)(i) 3.88 2.83 2.21 1.60 2.23 2.69 3.03
(i)The January 2021-April 2021 values changed slightly from last month's publication to account for two missing 2020 deals.

Chart 4

image

Table 5

Issuer Shelf Extension % (Based on $ Balance)
Deal Type Shelf Name Jan-2020 Feb-2020 May-20 Apr-2021 May-2021 Jun-21 Jul-21
Prime Ally 0.30 0.37 1.70 0.27 0.39 0.46 0.52
Prime BMW 0.19 0.17 1.56 0.23 0.21 0.24 0.24
Prime CapOne 0.01 0.01 0.88 0.07 0.09 0.07 0.10
Prime CarMax 0.46 0.38 2.29 0.26 0.29 0.35 0.38
Prime Carvana P N/A N/A N/A 0.06 0.07 0.08 0.07
Prime CRART 1.51 0.93 3.68 0.45 0.61 0.69 0.87
Prime Fifth Third 0.17 0.12 1.57 0.09 0.03 0.12 0.06
Prime Ford 0.97 0.75 1.95 0.62 0.69 0.80 0.79
Prime GMF 0.44 0.32 1.31 0.19 0.21 0.29 0.32
Prime Harley 0.19 0.20 0.97 0.26 0.25 0.33 0.23
Prime Honda 0.16 0.11 1.16 0.09 0.08 0.11 0.10
Prime Hyundai 0.39 0.25 3.06 0.20 0.22 0.34 0.38
Prime Mercedes 0.18 0.15 3.42 0.23 0.22 0.32 0.28
Prime Nissan 0.59 0.44 3.46 0.29 0.36 0.43 0.42
Prime Toyota 0.35 0.28 2.55 0.15 0.18 0.26 0.21
Prime USAA 0.54 0.41 3.27 0.24 0.23 0.28 0.26
Prime VW 0.22 0.21 1.99 0.08 0.10 0.15 0.16
Prime World Omni 0.49 0.38 3.12 0.19 0.26 0.29 0.31
Subprime American Credit Acceptance 4.44 2.84 4.01 0.85 0.97 1.75 2.33
Subprime AmeriCredit 3.11 2.48 3.83 1.43 1.82 2.28 2.64
Subprime Avid 2.79 2.88 13.75 3.83 3.55 3.54 3.14
Subprime CPS 5.04 3.71 6.54 1.70 2.40 3.30 3.57
Subprime DRIVE 1.59 1.14 12.03 1.27 1.63 1.94 2.05
Subprime DriveTime 5.22 3.84 3.96 0.89 4.45 4.89 4.73
Subprime Exeter 3.70 3.02 9.36 2.39 2.84 3.83 4.65
Subprime First Investors 3.73 2.79 1.55 1.35 1.76 2.43 2.42
Subprime Flagship 2.86 2.01 7.39 2.08 2.40 2.81 3.25
Subprime GLS 4.54 2.80 4.59 1.51 1.51 2.06 2.56
Subprime Prestige 2.66 2.69 3.51 2.11 2.35 2.63 2.88
Subprime SDART 1.42 1.07 9.85 0.86 1.10 1.41 1.49
Subprime Tidewater 2.47 1.06 6.66 1.75 1.54 1.96 1.95
Subprime United Auto Credit 5.91 4.75 4.50 1.69 2.13 2.11 2.42
Subprime Westlake 5.91 4.85 5.70 3.64 4.62 4.50 5.18
Subprime World Omni Select 1.78 1.58 8.91 0.87 0.92 1.24 1.27

Of the 18 prime issuers, the majority had fewer extensions in July than in June. California Republic Bank (CRART) and Ford Credit continue to report the highest levels (0.87% and 0.79%, respectively).

Of the 16 subprime issuers, 12 extended a higher percentage of loans in July than June. Westlake and DriveTime continued to report the highest levels (5.18% and 4.73%), but even with the increase, their July extension levels were below January and February 2020's level. Exeter reported the largest month-over-month increase (82 basis points), to 4.65% from 3.83% the prior month.

Auto Loan ABS Rating Activity/Revised Loss Expectations

In August 2021, we revised our loss expectations (see "Auto Loan ABS COVID-19 Loss Adjustment Reassessed After Better-Than-Expected Performance," published July 8, 2021) and took the following rating actions:

These rating actions resulted in 41 upgrades and 60 affirmations (see table 6).

Table 6

Historical Ratings Activity--U.S. ABS Auto Loans
Period Upgrades Downgrades
2015 177 0
2016 357 0
2017 322 0
2018 335 2
2019 432 5
2020 332 8
2021 (YTD August 2021) 298 0
Total 2,253 15

Of the 20 transactions we reviewed in August, we lowered our ECNLs on all transactions(see tables 7-9).

Table 7

Ally Auto Receivables Trust
Series Initial expected net loss range (%) Former expected lifetime CNL (%) Revised/maintained expected lifetime CNL (%) (revised August 2021)
2018-1 0.95-1.05 1.00-1.20 Up to 0.85
2018-3 0.95-1.05 0.95-1.05 Up to 0.95
2019-2 0.95-1.05 1.10-1.30 0.95-1.05
2019-3 0.95-1.05 1.05-1.15 0.95-1.05
2019-4 0.95-1.05 N/A 0.70-0.90
CNL--Cumulative net loss. N/A--Not applicable.

Table 8

Bank Of The West Auto Trust
Series Initial expected net loss range (%) Former expected lifetime CNL (%) Revised/maintained expected lifetime CNL (%) (revised August 2021)
2017-1 1.45-1.65 1.90-2.10 Up to 1.60
2018-1 1.50-1.70 1.45-1.65 1.20-1.40
2019-1 2.30-2.50 2.90-3.10 2.10-2.30
CNL--Cumulative net loss.

Table 9

CarMax Auto Owner Trust
Series Initial expected net loss range (%) Former expected lifetime CNL (%) Revised/maintained expected lifetime CNL (%) (revised August 2021)
2017-3 2.15-2.25 Up to 2.15 Up to 1.90
2017-4 2.15-2.25 2.05-2.15 Up to 1.80
2018-1 2.20-2.30 2.05-2.15 1.70-1.80
2018-2 2.20-2.30 2.15-2.25 1.85-1.95
2018-3 2.20-2.30 2.20-2.30 1.90-2.00
2018-4 2.20-2.30 2.20-2.30 1.90-2.00
2019-1 2.20-2.30 2.25-2.35 1.95-2.05
2019-2 2.15-2.25 2.25-2.35 1.95-2.05
2019-3 2.20-2.30 2.25-2.35 1.95-2.05
2019-4 2.20-2.30 2.30-2.50 1.95-2.05
2020-1 2.15-2.25 N/A 1.95-2.05
2020-2 2.80-3.00 N/A 1.95-2.05
CNL--Cumulative net loss. N/A--Not applicable.

Appendix: Auto Tracker Frequently Asked Questions

How do you define prime auto loan ABS?

We generally categorize prime auto loan ABS transactions as those backed by loan pools with initial ECNLs of 3.00% or less, average FICO scores of 700 or higher, and annual percentage rates (APRs) of 0.00%-5.00%.

How do you define subprime auto loan ABS?

We generally categorize subprime auto loan ABS transactions as those backed by loan pools with initial ECNLs of at least 7.50%, average FICO scores of less than 620, and APRs that exceed 14.00%.

How do you calculate the monthly net loss rate?

The monthly net loss rate is annualized. It equals each transaction's net loss rate weighted by the transaction's ending pool balance for the current month over the aggregate ending pool balance of all transactions included in the index.

We only allow a transaction to enter the composite starting in its fourth month outstanding. Transactions usually have zero or low losses during their first three months, which dilutes the composite figures.

How do you calculate the monthly recovery rate?

We calculate recoveries by taking the recovery amount reported (which typically includes all recoveries, including disposition proceeds, post-disposition proceeds, and any other reported recoveries) over the gross loss amount for the current month. We then weight each transaction's recovery percentage by the transaction's ending pool balance for the current month over the aggregate ending pool balance of all transactions included in the index.

We only allow a transaction to enter the index starting in its fourth month outstanding. During a transaction's first three months, unusually high or low recoveries are reported, leading to a spike in the composite figures.

How do you calculate the monthly 60-plus-day delinquency rate?

We calculate delinquencies by taking each transaction's 60-plus-day delinquency amount over the ending pool balance for the current month. We then weight each transaction's 60-plus-day delinquency percentage by the transaction's ending pool balance for the current month over the aggregate ending pool balance of all transactions included in the composite.

We only allow a transaction to enter the composite starting in its fourth month outstanding. During the transaction's first three months, zero or lower delinquencies are reported, which dilutes the composite figures.

What is the Auto Loan Static Index (ALSI)?

Our ALSI monitors the credit performance of securitizations that were originated in the same year on a weighted average basis. The number of months displayed for each vintage is generally determined by the last month that all securitizations for that time period have a data point. We calculate the prime and subprime ALSI CNLs by taking the weighted average of the CNLs of the transactions that were completed in the same time period (generally a year). Each transaction's CNL is weighted by its initial pool balance over the aggregate initial pool balance of all the transactions included in the index for that period. In the subprime ALSI, transactions from Byrider Finance LLC (doing business as CarNow Acceptance Corp.), Credit Acceptance Corp., and DriveTime Automotive Group Inc. are excluded because they do not have the typical indirect auto loan business model.

Which transactions are included in the prime, subprime, and modified subprime composites and indices?

For a list of the transactions included in our prime, subprime, and modified subprime composites and indices, see "U.S. Auto Loan ABS Tracker: March 2019," published May 23, 2019. However, note that we subsequently added transactions rated by S&P Global Ratings that have since closed, most prime transactions that closed and were not rated by S&P Global Ratings from 2016 through the present, and most Santander Drive Auto Receivables Trust and AmeriCredit Automobile Receivables Trust transactions not rated by S&P Global Ratings.

Related Research

This report does not constitute a rating action.

Primary Credit Analyst:Amy S Martin, New York + 1 (212) 438 2538;
amy.martin@spglobal.com
Secondary Contacts:Timothy J Moran, CFA, FRM, New York + 1 (212) 438 2440;
timothy.moran@spglobal.com
Jennie P Lam, New York + 1 (212) 438 2524;
jennie.lam@spglobal.com
Kenneth D Martens, New York + 1 (212) 438 7327;
kenneth.martens@spglobal.com
Steve D Martinez, New York + 1 (212) 438 2881;
steve.martinez@spglobal.com
Research Contributor:Nupur Hule, CRISIL Global Analytical Center, an S&P affiliate, Mumbai

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