articles Ratings /ratings/en/research/articles/220526-subprime-auto-loan-delinquencies-may-not-be-as-high-as-reported-12391585 content esgSubNav
In This List

Subprime Auto Loan Delinquencies May Not Be As High As Reported


European CMBS Can Ride The Refinance Wave


U.S. CMBS Update Q1 2024: Office Performance And Interest Rates Are Still Driving The Conversation


U.S. Auto Loan ABS Tracker: February 2024 Performance


Weekly European CLO Update

Subprime Auto Loan Delinquencies May Not Be As High As Reported

It has recently been reported in the media that more subprime car buyers are falling behind on their auto loan payments. This report used Equifax data that ostensibly show 60+ day delinquencies for subprime auto loan and lease borrowers (those with FICOs of less than 620) totaling 8.5% for March 2022, up from 7.9% for March 2021. According to these data, delinquencies on subprime car loans and leases hit an all-time high of 8.8% in February. The data S&P Global Ratings collects from monthly servicing reports, on the other hand, indicates that 60+ day delinquencies for subprime auto loan ABS remained below pre-pandemic levels in the first quarter of the year. Sixty-plus day delinquencies were 3.82% as of March 2022, up from 2.65% a year earlier, but down from 5.01% in March 2020 and 12% lower than the 4.34% reported for March 2019 (see chart). Our data also show that February 2022's 60+ day delinquencies were at 4.43%, which was not a record high. In fact, delinquencies that month were down from February 2019 and February 2020's levels of 4.99% and 4.94%, respectively.


Accounting For The Discrepancy

This isn't the first time that our data and conclusions have differed from others reported in the media. In March 2019, we noted that there were differences between how the Federal Reserve Bank of New York (FRBNY, which uses Equifax auto data for its Quarterly Report On Household Debt And Credit) calculates 90+ day delinquencies and how we do (see "The Severity Of Subprime Auto Loan Delinquencies Is In The Eye Of The Beholder," published March 18, 2019). The FRBNY's data dictionary states that 90+ day delinquencies are accounts that are either 90 days late, 120 days late, or "severely derogatory" (i.e., include reports of a repossession, a charge-off to bad debt, or foreclosure). In our view, the inclusion of charge-offs in this delinquency metric is the main reason why the FRBNY was reporting 90+ day delinquencies of 4.47% on all auto loans for the fourth quarter of 2018, while our data indicated only 0.11% for prime loans and 1.6% for subprime loans at Dec. 31, 2018. We believe that the 60+ day delinquency data used in the recent media report similarly included severely derogatory accounts, inclusive of charge-offs.

In auto finance, once loans are charged off or considered to have defaulted, they are no longer included in the delinquency statistics: that would be double counting (counting the loan as delinquent and as a charge-off). Banks and auto finance companies generally charge off delinquent accounts around the 120th day of delinquency--or earlier if the vehicle has been repossessed and liquidated (although some lenders may have slightly different policies). We believe including charge-offs in delinquencies overstates the degree of late payments.

In addition to a difference in calculation method, Equifax' data differ from ours in that they include a wider swatch of the auto finance market. Our data include only loans that have been securitized. In 2021, approximately $43.8 billion in subprime auto loans were securitized, which represented approximately 36% of the $123.3 billion in subprime auto loans that were originated, as tallied by the NYFRB in its February 2022 Quarterly Report On Household Debt And Credit.

Other Subprime Auto Loan ABS Metrics

Although subprime auto loan 60+ day delinquencies have been normalizing and are nearly back to pre-pandemic levels, subprime loan losses remain well below pre-pandemic levels, in large part due to record recovery rates (see chart above). Annualized losses for March 2022 were only 4.10%, which was 42% lower than March 2019's level of 7.11%.

At the same time, the recovery rate was 63.6%, up from 49.1% three years prior. The record recovery rates we've been seeing is due to the tremendous demand for used vehicles, caused, in part, by the scarcity of new vehicles resulting from semiconductor and other component shortages. Not only are new-vehicle buyers shifting to used vehicle ownership, but rental companies in need of expanding their fleets are buying used vehicles as well. During 2020 and 2021, used-vehicle demand also benefited from consumers being flush with additional savings from the receipt of stimulus checks, and many wanting a vehicle to travel safely to work or go on a driving vacation. Many urban dwellers also moved out of cities, and with that came the need to purchase a vehicle.

We expect recovery rates to normalize to pre-pandemic levels because the more recently financed vehicles, which were sold at much higher prices than two years ago, are not likely to experience the same run up in values that we saw from 2020 through 2021. Therefore, to the extent consumers eventually default on these loans, future recovery rates are likely to be closer to historical averages, in our view. We take this into account when determining our base-case cumulative net loss proxies.


While we expect recovery rates to decline and losses to normalize, we believe that the investment-grade (rated 'BBB-' or higher) subprime auto loan ABS we rate are adequately protected due to the significant amounts of credit enhancement in the transaction structures. Further, we test these deals for a recessionary-type environment, with losses increasing between 1.4x and 1.75x our base-case cumulative net loss (CNL) level (1.4x is generally the 'BBB' multiple we use for pools with base-case CNLs of about 25%, and 1.75x is used for pools with base-case CNLs of about 10%-15%). We do not assign ratings of 'AAA' or 'AA' if this 'BBB' moderate stress scenario indicates that we would downgrade the classes below 'AA' and 'A', respectively, over a one year period or below 'BBB' and 'BB', respectively, over a three year period (see table). However, as we move down to 'BB' (the first category below investment-grade level), the classes have much less credit enhancement and are more susceptible to downgrade and default. At time of this publication, we do not have any auto loan ABS classes on CreditWatch with negative implications.

Maximum Projected Rating Deterioration For One- And Three-Year Horizons Under 'BBB' Stress
One year AA A BB B CCC D
Three years BBB BB B CCC D D

Monitoring For Early Warning Signs

Although we disagree with the reports stating that subprime delinquency levels have recently reached a record high, we do recognize that this sector bears close monitoring. Subprime borrowers are likely to be affected to a greater extent from higher prices at the pump and elevated housing costs. Also, inflationary pressures are outstripping wage growth and could eventually affect these borrowers' ability to meet their financial commitments. Many may have spent their COVID-related savings and are having to adjust to the loss of the expanded child-tax credit payments (the last payment was in December 2021). With that said, the unemployment rate, the most impactful economic variable on auto loan performance, remains low at 3.6% and our outlook is for it to stay in that vicinity for the rest of 2022. This should provide a strong tailwind as we progress through the year.

We continue to closely watch extensions and delinquencies, as these are often early warning signs of higher losses down the road. Currently extensions in the subprime segment remain near pre-pandemic levels, and delinquencies for March 2022 were still slightly below those reported in March 2019. On a vintage static pool basis, wherein losses are assigned to the period in which the underlying loans were originated (or securitized), we are seeing some weakness in the 2021 third-quarter vintage, although this seems to be issuer-specific thus far and may be more attributable to growth and competitive forces than any macroeconomic factor.

Related Research

This report does not constitute a rating action.

Primary Credit Analyst:Amy S Martin, New York + 1 (212) 438 2538;

No content (including ratings, credit-related analyses and data, valuations, model, software, or other application or output therefrom) or any part thereof (Content) may be modified, reverse engineered, reproduced, or distributed in any form by any means, or stored in a database or retrieval system, without the prior written permission of Standard & Poor’s Financial Services LLC or its affiliates (collectively, S&P). The Content shall not be used for any unlawful or unauthorized purposes. S&P and any third-party providers, as well as their directors, officers, shareholders, employees, or agents (collectively S&P Parties) do not guarantee the accuracy, completeness, timeliness, or availability of the Content. S&P Parties are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, for the results obtained from the use of the Content, or for the security or maintenance of any data input by the user. The Content is provided on an “as is” basis. S&P PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, FREEDOM FROM BUGS, SOFTWARE ERRORS OR DEFECTS, THAT THE CONTENT’S FUNCTIONING WILL BE UNINTERRUPTED, OR THAT THE CONTENT WILL OPERATE WITH ANY SOFTWARE OR HARDWARE CONFIGURATION. In no event shall S&P Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs or losses caused by negligence) in connection with any use of the Content even if advised of the possibility of such damages.

Credit-related and other analyses, including ratings, and statements in the Content are statements of opinion as of the date they are expressed and not statements of fact. S&P’s opinions, analyses, and rating acknowledgment decisions (described below) are not recommendations to purchase, hold, or sell any securities or to make any investment decisions, and do not address the suitability of any security. S&P assumes no obligation to update the Content following publication in any form or format. The Content should not be relied on and is not a substitute for the skill, judgment, and experience of the user, its management, employees, advisors, and/or clients when making investment and other business decisions. S&P does not act as a fiduciary or an investment advisor except where registered as such. While S&P has obtained information from sources it believes to be reliable, S&P does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives. Rating-related publications may be published for a variety of reasons that are not necessarily dependent on action by rating committees, including, but not limited to, the publication of a periodic update on a credit rating and related analyses.

To the extent that regulatory authorities allow a rating agency to acknowledge in one jurisdiction a rating issued in another jurisdiction for certain regulatory purposes, S&P reserves the right to assign, withdraw, or suspend such acknowledgement at any time and in its sole discretion. S&P Parties disclaim any duty whatsoever arising out of the assignment, withdrawal, or suspension of an acknowledgment as well as any liability for any damage alleged to have been suffered on account thereof.

S&P keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of their respective activities. As a result, certain business units of S&P may have information that is not available to other S&P business units. S&P has established policies and procedures to maintain the confidentiality of certain nonpublic information received in connection with each analytical process.

S&P may receive compensation for its ratings and certain analyses, normally from issuers or underwriters of securities or from obligors. S&P reserves the right to disseminate its opinions and analyses. S&P's public ratings and analyses are made available on its Web sites, (free of charge), and (subscription), and may be distributed through other means, including via S&P publications and third-party redistributors. Additional information about our ratings fees is available at


Create a free account to unlock the article.

Gain access to exclusive research, events and more.

Already have an account?    Sign in