U.S. auto loan collateral performance saw mixed results month over month in January. Prime performance mostly improved with declining loss rates amid higher recoveries, while subprime performance largely deteriorated with increasing loss rates and declining recoveries. As a result, prime losses remained approximately 24.60% below January 2020's level while subprime losses returned to pre-pandemic levels. Although prime delinquencies increased a bit and subprime delinquencies retreated, both stood at elevated levels compared to January 2019 and January 2020 due to inflationary effects on the consumer and lenders' looser credit standards and higher origination volumes from 2021 to the first half of 2022. In response, many lenders have recently tightened their credit guidelines or are reducing the mix of lower quality loans that they book, as per our discussions with most of them at a recent industry conference.

Given the growing concern about a potential recession this year and the impact it could have on the subprime auto loan ABS that are rated by S&P Global Ratings, we recently conducted a scenario analysis (see "How The Next Downturn Could Affect U.S. Subprime Auto Loan ABS Ratings," published Dec. 8, 2022).

Subprime Losses Increased To Pre-Pandemic Levels While Prime Losses Remain 25% Lower

Prime losses decreased month over month to 0.49% in January from 0.53% in December 2022 thanks to higher recoveries (see table 1 and chart 1). Although that was an increase from 0.43% in January 2022, losses remained 24.62% lower than January 2020's 0.65% level.

Subprime losses continued their gradual rise, increasing to 9.02% in January from 8.47% in December 2022. Moreover, losses were on par with January 2020's 9.04% level. The month-to-month increase was expected given that six of the last eight Januarys have witnessed a rise in losses over the December month losses.

Chart 1

Recoveries Mimicked Losses, Improving For Prime And Declining For Subprime

Prime recoveries increased to 57.65% in January from 51.64% the prior month and remained slightly higher than January 2020's pre-pandemic 56.06% rate. They have normalized significantly from 61.99% and 67.02% for January 2022 and January 2021, respectively. Nissan, Capital One, Carvana, Carmax, and Ford, which combined represent approximately 39.07% of the index, reported higher recoveries in January 2023. These five issuers saw recoveries rise to 111.49%, 108.64%, 65.31%, 46.18%, and 70.56% in January, respectively, from 72.50%, 78.39%, 29.93%, 35.85%, and 56.51% the prior month.

While many prime issuers benefitted from slightly higher industry used vehicle prices (Manheim Used Vehicle Value Index increased 2.50% to 224.8 from 219.3 in December 2022), we suspect that much of improvement was also due to their strategically holding back from liquidating a portion of their December repossessions until January. The prime recovery rate had fallen to 51.64% in December from 65.84% the prior month, despite a slight uptick in industry used vehicle prices (Manheim increased to 219.3 from 217.6)

Higher used vehicle prices were not much help for subprime issuers as this segment's recovery rate declined to 37.27% in January from 39.80% a month earlier. Moreover, they fell below January 2020's and January 2019's pre-pandemic levels of 39.10% and 38.54%, respectively (see table 2 and chart 2). Issuers dragging down the overall subprime recovery index were AmeriCredit and Santander (both Santander Drive Auto Receivables Trust [SDART] and Drive Auto Receivables Trust [Drive] platforms). The recoveries fell to 44.43% for AmeriCredit, 43.21% for SDART, and 48.94% for Drive in January from 52.54%, 48.93%, and 58.56%, respectively, a month ago. While it's surprising that Santander's deep subprime shelf, Drive, had higher recovery rates than the issuer's mainstream subprime shelf, SDART, there were no Drive issuances in 2022, which is the vintage most affecting the SDART deals. The SDART platform had six outstanding deals with at least four months of performance as of the end of January 2023 that are included in our composite.

We've observed a significant deterioration in recovery rates for the 2022 subprime vintage of securitizations. As our annual tracker showed last month, subprime cumulative recovery rates (CRR) for the first-quarter 2022 vintage through month 10 were only 32.36% compared to 40.84% for 2021 at the same point--a 21% reduction. Some issuers attribute a portion of the recovery rate decline to incurring more full balance charge-offs than historically because it's taking longer to repossess and liquidate the vehicles. In addition, the financed amounts for subprime loans securitized in 2022 were substantially higher than in prior years. As a result, if used vehicle prices didn't continue to rise as well, recovery rates were poised to decline.

Chart 2

Delinquencies Remain Elevated Above Pre-Pandemic Levels

The prime 60-plus-day delinquency rate increased month over month to 0.54% in January from 0.51% in December, and it is approximately 13% higher than the January 2020 pre-pandemic level of 0.47% (see table 3 and chart 3).

The subprime 60-plus-days delinquency rate retreated slightly to 5.95% in January 2023 from 6.03% a month earlier. This is a return to around January 2018 levels of 5.93% and is approximately 9% higher than the January 2020 pre-pandemic level of 5.44%.

Table 3

Chart 3

Extension Rates Fell Month Over Month But Remain Above Pre-Pandemic Levels

Prime and subprime issuers both saw lower extension rates month over month in January. However, despite this decline, extensions increased both year over year and relative to the January 2020 pre-pandemic levels. Although prime extensions declined to 0.43% in January from 0.50% the previous month, it is higher than the 0.37% reported in January 2022 and the 0.40% in January 2020. Similarly, extensions for subprime public and 144a transactions in aggregate declined slightly to 3.61% in January from 3.68% the prior month, but they exceeded the 3.26% reported in January 2022 and the 3.04% in January 2020 (see chart 4).

chart 4

Prime extension rates

Of the 16 prime ABS auto issuers that have transactions outstanding, only one reported higher month-over-month extensions (see table 4a).

• BMW Vehicle Owner Trust was the only issuer having reported an increase in extensions month on month (16 bps to 0.16% from 0.00%).
• The top three issuers to report month-over-month declines were Ally Auto Receivables Trust (fell 23 bps to 0.52% from 0.74%), World Omni Auto Receivables Trust (20 bps to 0.53% from 0.73%), and Hyundai Auto Receivables Trust (12 bps to 0.39% from 0.51%).
• Ford Credit Auto Owner Trust and CarMax Auto Owner Trust continued to report the highest extension levels of 1.00% and 0.78%, respectively.

Table 4a

Subprime extension rates

144a subprime issuer extensions decreased to a weighted average of 4.97% in January from 5.12% the prior month, but they were higher than the 4.69% reported in January 2022 and the January 2020 pre-pandemic level of 4.14%.

Similarly, extension rates for subprime public issuers decreased to a weighted average of 2.60% in January 2022 from 2.72% the previous month, but increased from 2.19% in January 2022 and 2.00% in January 2020.

Of the 18 subprime issuers with data as of January 2023, seven issuers reported higher month-over-month extension rates, while 13 reported a year-over-year increase. Eleven issuers also reported increases from their January 2020 levels (see table 4b).

Other noteworthy changes in January include the following:

• The top three issuers to report month-over-month declines were Exeter Automobile Receivables Trust (fell 144 bps to 4.70% from 6.14%), Avid Automobile Receivables Trust (117 bps to 3.34% from 4.51%), and First Investors Auto Owner Trust (100 bps to 2.74% from 3.74%).
• The top three issuers to report month-over-month increases were CPS Auto Receivables Trust (rose 67 bps to 5.39% from 4.72%), DriveTime Automotive Group Inc. (28 bps to 3.35% from 3.07%), and GLS Auto Receivables Trust (27 bps to 4.15% from 3.88%).
• The Westlake Automobile Receivables Trust and United Auto Credit Securitization Trust (UACST) transactions had the highest extensions, at 6.90% and 6.25%, respectively. Although Westlake and UACST continue to have relative high extensions, their average 60+ delinquencies were only 1.40% and 4.37%, respectively, compared to the subprime composite average of 5.95%.
• Flagship Credit Auto Trust (Flagship) and Prestige Auto Receivables Trust reported the highest increase in extensions relative to the January 2020 levels. Flagship's extensions rose 218 bps to 5.04% from 2.86% and Prestige's increased 127 bps to 3.93% from 2.66%.

Table 4b

Auto Loan ABS Rating Activity/Revised Loss Expectations

In February 2023, we revised our loss expectations and took the following rating actions:

• We raised four ratings and affirmed 12 ratings on three Capital One Prime Auto Receivables Trust transactions (see "Four Ratings Raised And 12 Affirmed On Three Capital One Prime Auto Receivables Trust Transactions," published Feb. 3, 2023).
• We affirmed three ratings on one Ford Auto Securitization Trust transaction (see "Three Ratings Affirmed From Ford Auto Securitization Trust, Series 2019-B," published Feb. 10, 2023).

These rating actions resulted in four upgrades and 15 affirmations, bringing the total number of upgrades on publicly rated U.S. and Canada auto loan ABS transactions to seven and zero, respectively, as of year 2023 (see tables 5 and 6).

Table 5

Table 6

As of March 13, 2023, a total of nine classes are on CreditWatch with negative implications.

Table 7

We lowered our expected cumulative net losses (ECNLs) on all four of the transactions we reviewed in February (see tables 7-13).

Table 8

Table 9

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. Then we 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. Then we 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: June 2022 Performance," published Aug. 17, 2022. However, note that we subsequently added transactions that have since closed.

Related Research

• Three Ratings Affirmed From Ford Auto Securitization Trust Series 2019-B, Feb. 10, 2023
• Four Ratings Raised And 12 Affirmed On Three Capital One Prime Auto Receivables Trust Transactions, Feb. 3, 2023
• Credit Conditions North America Q1 2023: Worse Before It Gets Better, Jan. 20, 2023
• How The Next Downturn Could Affect U.S. Subprime Auto Loan ABS Ratings, Dec. 8, 2022