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U.S. Auto Loan ABS Tracker: July 2022 Performance

As we entered the second half of the year, seasonal trends emerged with losses rising and recoveries declining relative to June. Defaults also tend to rise as we move further away from tax refund season, while used vehicles generally lose more of their value as demand weakens and the next year's models are introduced. We are also seeing the normalization of credit performance as consumers adjust to the lack of pandemic-related government payments. Still, despite increasing, prime and subprime losses remained below the July 2019 pre-pandemic levels.

Losses Continued To Rise

The higher loss trend that started in May 2022 continued into July. Prime net losses increased month over month to 0.35% in July from 0.29% in June, and rose 26 basis points (bps) year over year from 0.09% in July 2021 (see table 1 and chart 1). However, despite increasing 20 bps, prime net losses are still 36% below the 0.55% recorded in July 2019.

Subprime losses increased month over month to 6.50% in July from 5.11% in June, and rose 379 bps year over year from 2.71% in July 2021. However, losses remain 21% below pre-pandemic levels.

We expect losses to continue rising for the remainder of the year and believe they could return to pre-pandemic levels over the next 12 months. In fact, if subprime losses continue to rise at the same rate as they did from June to July (139 bps), losses will be back to pre-pandemic levels in September.

Table 1

Net Loss Rate Composite(i)
Jul-13 Jul-14 Jul-15 Jul-16 Jul-17 Jul-18 Jul-19 Jul-20 Jul-21 Jun-22 Jul-22
Prime (%) 0.36 0.48 0.50 0.58 0.62 0.50 0.55 0.38 0.09 0.29 0.35
Subprime (%) 5.62 6.39 6.70 8.01 8.44 7.81 8.21 3.16 2.71 5.11 6.50
Subprime modified (%)(ii) 4.39 5.70 5.87 6.44 6.83 6.18 6.37 2.96 2.14 3.92 5.05
(i)Represents monthly annualized losses. (ii)Excludes the three large deep subprime issuers: American Credit Acceptance, Exeter, and DRIVE.

Chart 1

image

Prime And Subprime Recovery Rates Declined

Prime recoveries fell to 65.49% in July from 67.80% in June, and from 91.41% in July 2021 (see table 2 and chart 2). Meanwhile, subprime recoveries decreased to 45.38% in July from 50.25% in June, and from 59.71% in July 2021. The declines were particularly steep relative to last year when the auto industry was facing severe new vehicle shortages due to supply chain issues. This led to a substantial increase in used vehicle prices last year, which in turn caused record high recovery rates. Given the affordability issues that consumers are now facing, used vehicles are starting to behave like used vehicles and are depreciating once again. However, even with the declines in July, recoveries remained above the five-year July pre-pandemic average of 58.54% for prime and 40.60% for subprime.

We expect recovery rates to continue normalizing because the newer financed vehicles are unlikely to experience the same run up in used vehicle values as in 2020 and 2021, which was partly due to three rounds of government stimulus checks being paid to consumers and a semiconductor supply bottle neck that is expected to ease in coming months.

Table 2

Recovery Rate Composite(i)
Jul-13 Jul-14 Jul-15 Jul-16 Jul-17 Jul-18 Jul-19 Jul-20 Jul-21 Jun-22 Jul-22
Prime (%) 64.39 57.98 59.28 57.62 57.59 59.71 58.50 63.42 91.41 67.80 65.49
Subprime (%) 45.11 45.44 43.50 39.72 37.18 40.33 42.25 60.10 59.71 51.07 45.38
Subprime modified (%)(ii) 53.26 46.30 44.53 40.38 38.05 41.23 42.51 55.99 59.61 50.25 44.90
(i)Represents monthly recovery rates. (ii)Three large deep subprime issuers--American Credit Acceptance, Exeter, and DRIVE--are excluded.

Chart 2

image

Delinquencies Increased

The prime 60-plus-day delinquency rate increased to 0.46% in July from 0.42% in June and 0.27% in July 2021, and it was higher than the 0.41% pre-pandemic level recorded in July 2019 (see table 3 and chart 3). Meanwhile, the subprime 60-plus-day delinquency rate climbed to 5.29% in July from 4.83% in June and 3.16% in July 2021, and it was 4 bps higher than the 5.25% recorded in July 2019.

Table 3

60-Plus-Day Delinquency Rate Composite(i)
Jul-13 Jul-14 Jul-15 Jul-16 Jul-17 Jul-18 Jul-19 Jul-20 Jul-21 Jun-22 Jul-22
Prime (%) 0.35 0.40 0.41 0.45 0.44 0.40 0.41 0.32 0.27 0.42 0.46
Subprime (%) 3.26 3.93 4.08 4.90 4.96 5.00 5.25 3.22 3.16 4.83 5.29
Subprime modified (%)(ii) 2.35 3.43 3.46 3.75 3.61 3.56 3.75 2.45 2.09 3.27 3.76
(i)Represents 60-plus-day delinquencies. (ii)Excludes the three large deep subprime issuers: American Credit Acceptance, Exeter, and DRIVE.

Chart 3

image

Extension Rates Rose

Following a seasonal post-tax refund period, prime and subprime issuers both saw higher month-over-month and year-over-year extensions. Prime extensions increased to 0.42% in July from 0.38% in June, and from 0.34% in July 2021 and 0.39% in August 2019 (the earliest extension data that S&P Global Ratings has for both prime and subprime transactions). Similarly, extensions for subprime public and 144a transactions rose in aggregate to 3.59% in July from 3.25% in June, and from 2.90% in July 2021 and 2.87% in August 2019 (see chart 4).

Chart 4

image

Subprime extension rates

144a subprime issuer extensions increased to 4.87% in July from 4.59% in June, and rose 115 bps from the monthly pre-pandemic extension rate of 3.84% for August 2019. (Note that our extension data for 144a issuers begins in August 2019.)

Public subprime issuer extensions increased to levels not seen since February 2021--rising to 2.51% in July from 2.30% in June 2022, and from 2.02% in July 2021 and the recent peak of 2.22% in December 2021. The monthly pre-pandemic average was approximately 2.00%.

Of the 16 subprime issuers we rate, nine reported month-over-month extensions rate increases and seven reported declines (see chart 4A). Seven of the 11 144a subprime issuers we rate reported month-over-month declines. The noteworthy changes include:

  • The top three increases were reported by Avid (rising 226 bps to 4.10% in July from 1.84% in August 2019), though this was due to a single outstanding transaction (series 2019-1, which is near maturity); Prestige (219 bps to 4.41% from 2.22%); and Exeter (161 bps to 5.29% from 3.68%).
  • First Investor extension rate also improved (rising 92 bps to 2.75% from 3.67 in August 2019).
  • Westlake and Exeter had the highest extensions in July, at 6.58% and 5.29%, respectively.

We believe this consumer segment faces a greater risk from inflationary pressures, and we will continue to monitor this metric, which we view as a potential indicator of higher losses.

Table 4A

Subprime Issuer Shelf Extension
% based on balance
Shelf Aug-19 Feb-20 Mar-20 Apr-20 Jul-21 Jun-22 Jul-22
American Credit Acceptance 3.43 2.84 3.66 5.15 2.33 2.85 3.92
AmeriCredit 2.93 2.48 4.11 6.93 2.64 2.91 3.08
Avid 1.84 2.88 3.43 2.82 3.14 3.39 4.10
CPS 3.18 3.71 6.18 10.21 3.57 4.75 3.97
Drive 2.07 1.14 8.14 20.64 2.05 1.81 1.99
DriveTime(i) 3.40 2.27 3.06 8.88 2.97 2.58 3.03
Exeter(ii) 3.68 3.02 4.34 11.80 4.19 5.34 5.29
First Investors 3.67 2.79 4.38 3.94 2.42 2.91 2.75
Flagship 2.86 2.01 9.26 18.81 3.25 4.30 4.16
GLS 3.45 2.80 4.92 11.39 2.56 3.34 3.22
Prestige 2.22 2.69 2.85 6.24 2.88 4.60 4.41
SDART 1.56 1.07 7.04 17.84 1.49 1.39 1.62
Tidewater 2.16 0.96 1.59 8.36 1.95 1.77 1.80
United Auto Credit 3.84 4.75 7.54 6.02 2.42 4.29 4.22
Westlake 5.51 4.85 11.73 7.41 5.18 6.04 6.58
World Omni Select 0.83 1.58 14.72 19.58 1.27 1.53 1.72
(i)The April and May 2022 extension rates for DriveTime include only the series 2021-3 and 2021-4 transactions. These are the only deals with at least four months of performance data in which the servicing reports provide extension info on a dollar basis (as opposed to account-based). The company previously provided dollar-based extensions through Dec. 31, 2021, for all of its outstanding transactions, and this is reflected in the prior month's data.
Prime extensions

The weighted average extension rate for prime auto issuers increased to 0.42% in July from 0.38% in June, and from 0.34% in July 2021 and 0.39% for August 2019. Of the 18 prime issuers we rate, 11 reported a month-over-month increase in extensions, two issuers reported declines, and five reported flat or negligible increases (see chart 4B).

Since the July 2021 data reflect the stimulus checks that consumers had recently received, which created a rather unfair comparison, we also compared the July 2022 extensions to the July 2019 data--the oldest pre-pandemic month for which we have prime extensions data. On this basis, eight prime issuers reported increased extensions in July 2022 relative to July 2019. The three highest reported increases were from Mercedes (rising 25 bps to 0.42% from 0.17% in June 2019), CarMax (17 bps to 0.64% from 0.47%), and Ally (17 bps to 0.59% from 0.42%). The active prime issuers with the highest extensions in July were Ford (0.97%) and CarMax (0.64%). California Republic Auto Receivables Trust (with California Republic Bank as the sponsor) had the second highest extensions (at 0.77%), but the issuer's last S&P Global Ratings-rated auto loan asset-backed securitization was in 2018.

Table 4b

Prime Issuer Shelf Extension
% based on balance
Shelf Jul-19 Feb-20 Mar-20 Apr-20 Jul-21 Jun-22 Jul-22
Ally 0.42 0.37 12.01 7.49 0.52 0.59 0.59
BMW 0.21 0.17 2.00 7.58 0.24 0.11 0.14
CapOne 0.00 0.01 0.82 1.94 0.10 0.08 0.08
CarMax 0.47 0.38 3.33 7.33 0.38 0.56 0.64
Carvana P N/A N/A N/A N/A 0.07 0.27 0.35
CRART 1.03 0.93 7.68 11.84 0.87 0.67 0.77
Fifth Third 0.11 0.12 0.97 4.91 0.06 0.15 0.08
Ford 0.88 0.75 6.30 6.35 0.79 0.95 0.97
GMF 0.39 0.32 0.81 2.27 0.32 0.33 0.35
Harley 0.18 0.20 1.85 4.00 0.23 0.29 0.24
Honda 0.18 0.11 2.03 4.51 0.10 0.10 0.11
Hyundai 0.40 0.25 2.03 4.22 0.38 0.37 0.41
Mercedes 0.17 0.15 4.62 7.21 0.28 0.35 0.42
Nissan 0.59 0.44 4.19 5.57 0.42 0.39 0.42
Toyota 0.36 0.28 2.79 6.24 0.21 0.25 0.26
USAA 0.39 0.41 2.27 4.80 0.26 0.29 0.44
VW 0.20 0.21 0.60 5.81 0.16 0.14 0.14
World Omni 0.54 0.38 5.85 8.82 0.31 0.41 0.48
N/A--Not applicable.

Auto Loan ABS Rating Activity/Revised Loss Expectations

In August, we revised our loss expectations and took the following rating actions:

These rating actions resulted in 67 upgrades and 43 affirmations, bringing the total number of upgrades on publicly rated U.S. auto loan ABS transactions to 251 in 2022 (see tables 5 and 6).

Table 5

Historical Ratings Activity--U.S. ABS Auto Loans
Upgrades Downgrades
2015 177 0
2016 357 0
2017 322 0
2018 335 2
2019 432 5
2020 332 8
2021 579 0
2022(i) 251 0
Total 2,693 15
(i)As of Aug. 31, 2022.

Table 6

Historical Ratings Activity--Canadian ABS Auto Loans
Upgrades Downgrades
2021 8 0
2022(i) 0 0
Total 8 0
(i)As of Aug. 31, 2022.

We lowered our expected cumulative net losses (ECNLs) on 31 of the 32 transactions we reviewed in August (see tables 7-13).

Table 7

Mercedes-Benz Auto Receivables Trust
Series Initial expected net loss range (%) Former expected lifetime CNL (%)(i) Revised/maintained expected lifetime CNL (revised August 2022) (%)
2018-1 0.55-0.65 Up to 0.55 Up to 0.45
2019-1 0.55-0.65 0.55-0.65 Up to 0.40
2020-1 0.90-1.10 0.55-0.65 0.25-0.35
2021-1 0.60-0.70 N/A 0.50-0.60
(i)Revised July 2021. ECNL--Expected cumulative net loss. N/A--Not applicable.

Table 8

DT Auto Owner Trust
Series Initial expected net loss range (%) Former expected lifetime CNL (%)(i) Revised/maintained expected lifetime CNL (revised August 2022) (%)
2018-2 29.00-30.00 Up to 24.00 Up to 21.75
2018-3 28.50-29.50 21.75-22.25 Up to 19.00
2019-1 28.50-29.50 21.75-22.25 19.00-19.50
2019-2 28.50-29.50 21.75-22.25 18.75-19.25
2019-3 27.00-28.00 21.75-22.25 18.25-18.75
2019-4 28.50-29.50 20.50-21.50 18.25-18.75
2020-1 28.50-29.50 20.00-21.00 18.25-18.75
2020-2 32.75-33.75 20.00-21.00 18.25-18.75
2020-3 32.75-33.75 20.00-21.00 18.50-19.00
2021-2 27.75-28.75 N/A 20.00-21.00
(i)Series 2018-2 through 2020-3 were revised in November 2021. ECNL--Expected cumulative net loss. N/A--Not applicable.

Table 9

Ally Auto Receivables Trust
Series Initial expected net loss range (%) Former expected lifetime CNL (%)(i) Revised/maintained expected lifetime CNL (revised August 2022) (%)
2019-2 0.95-1.05 0.95-1.05 Up to 0.80
2019-3 0.95-1.05 0.95-1.05 Up to 0.80
2019-4 0.95-1.05 0.70-0.90 Up to 0.65
(i)Revised August 2021. ECNL--Expected cumulative net loss.

Table 10

Nissan Auto Receivables
Series Initial expected net loss range (%) Former expected lifetime CNL (%) Revised/maintained expected lifetime CNL (revised August 2022) (%)
2021-A 1.30-1.50 0.70-0.90 Up to 0.45
ECNL--Expected cumulative net loss.

Table 11

GLS Auto Receivables Issuer Trust
Series Initial expected net loss range (%) Revised/maintained expected lifetime CNL (revised August 2022) (%)
2021-1 19.50-20.50 12.25-13.25
ECNL--Expected cumulative net loss. N/A--Not applicable.

Table 12

American Credit Acceptance Receivables Trust
Series Initial expected net loss range (%) Former expected lifetime CNL (%)(i) Revised/maintained expected lifetime CNL (revised August 2022) (%)
2018-4 27.00-28.00 22.00-23.00 Up to 21.00
2019-1 28.00-29.00 22.75-23.75 19.50-20.50
2019-2 27.00-28.00 22.25-23.25 18.50-19.50
2019-3 27.75-28.75 22.25-23.25 18.50-19.50
2019-4 27.25-28.25 22.00-23.00 18.00-19.00
2020-1 27.25-28.25 22.00-23.00 18.00-19.00
2020-2 32.00-33.00 22.50-23.50 18.50-19.50
2020-3 31.50-32.50 22.00-23.00 18.00-19.00
2020-4 31.50-32.50 22.00-23.00 20.50-21.50
2021-1 30.50-31.50 22.25-23.25 20.50-21.50
2021-2 27.75-28.75 N/A 24.50-25.50
2021-3 26.50-27.50 N/A 26.50-27.50
(i)Revised November 2021, except series 2020-4 and 2021-1, which were revised in March 2022. ECNL--Expected cumulative net loss. N/A--Not applicable.

Table 13

Bank of the West Auto Trust
Series Initial expected net loss range (%) Former expected lifetime CNL (%)(i) Revised/maintained expected lifetime CNL (revised August 2022) (%)
2019-1 2.30-2.50 2.10-2.30 1.60-1.80
(i)Revised August 2021. ECNL--Expected 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 3.0% or less, average FICO scores of 700 or higher, and annual percentage rates (APRs) of 0.0%-5.0%.

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 7.5%, average FICO scores of less than 620, and APRs that exceed 14.0%.

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 fewer 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 and subprime composites and indices, see "U.S. Auto Loan ABS Tracker: March 2022 Performance," published May 12, 2022. However, note that we subsequently added transactions that have since closed.

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:Jennie P Lam, New York + 1 (212) 438 2524;
jennie.lam@spglobal.com
Steve D Martinez, New York + 1 (212) 438 2881;
steve.martinez@spglobal.com
Sanjay Narine, CFA, Toronto + 1 (416) 507 2548;
sanjay.narine@spglobal.com
Research Contributor:Veerbhadrappa Umbargi, CRISIL Global Analytical Center, an S&P affiliate, Mumbai

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