- Performance continued to deteriorate for the month of July with prime and subprime annualized losses increasing and recoveries declining month-over-month and year-over-year. Additionally, prime losses are at par with pre-pandemic levels of 2019, and subprime losses exceeded pre-pandemic levels.
- Like in June 2023, 60-plus-day delinquencies rose to the highest ever July level in our composite for subprime and highest July level since 2011 for prime.
- In August, we lowered our expected cumulative net loss levels on eight U.S. and one Canadian ABS transactions. The U.S. transactions saw 35 upgrades and 21 affirmations, while the Canadian transaction saw affirmations on the two 'AAA' rated classes. There were no downgrades.
U.S. auto loan asset-backed securities (ABS) performance continued to weaken in July 2023, with annualized losses increasing in the prime and subprime segments month-over-month and year-over-year. Like June 2023, prime losses returned to July 2019's pre-pandemic levels. Moreover, subprime losses surpassed June 2019 pre-pandemic levels, and the deterioration was not confined to the deep subprime space, because the modified subprime composite, which excludes the three large deep subprime securitizers (Exeter, Santander's Drive platform, and American Credit Acceptance) reported record high July losses. While the month-to-month deterioration is expected due to seasonal patterns as we move further away from tax-refund season, subprime losses rising above pre-pandemic levels is concerning. We attribute this trend to diminishing COVID-19-related savings, inflationary pressures, growth in lending from 2021 through first-quarter 2022, and lower recoveries.
Losses Increased Month-Over-Month And Year-Over-Year; Subprime Losses Surpassed 2019 Levels
Prime annualized net losses increased month-over-month to 0.55% in July 2023 from 0.48% in June 2023. Higher losses are consistent with expected seasonal trends in auto loan ABS performance, given that losses tend to rise the further we move away from tax-refund season. However, like June 2023, the losses have normalized to July 2019's level of 0.55%.
Similarly, subprime annualized net losses worsened month-over-month and year-over-year to 8.32% in July 2023, from 6.87% in June 2023 and from 6.57% in July 2022. Additionally, losses surpassed the pre-pandemic level of 8.21% in July 2019. Prestige Auto Receivables Trust, Drive Auto Receivables Trust, and Flagship Credit Auto Trust contributed the most to the subprime composite's month to month rise in July 2023.
After netting out the three large deep subprime issuers, modified subprime annualized losses rose to 7.25% in July 2023 from 6.01% in June 2023 and 4.98% in July 2022. Losses remain elevated above the pre-pandemic levels of July 2019 (6.37%). We attribute this performance degradation to inflationary pressures on lower-income consumers, the loss of pandemic-related support programs, the tremendous growth in originations in 2021 through first-quarter 2022, and lower recoveries. Some lenders have also pointed to what they refer as "credit score inflation" as contributing to higher losses.
|Net loss rate composite(i)|
|Subprime modified (%)(iii)(iv)||N/A||5.70||5.87||6.44||6.83||6.18||6.37||2.96||2.14||4.98||6.01||7.25|
|(i)Represents monthly annualized losses. (ii)Excludes American Credit Acceptance, Exeter, and DRIVE.|
Recoveries Declined Month-Over-Month For Both Prime And Subprime
Prime recoveries declined slightly month-over-month as well as year-over-year. For prime, the recovery rate decreased to 62.46% in July 2023 from 63.29% in June 2023 and 65.49% in July 2022. However, they were still higher than the July 2019 pre-pandemic level of 58.50%.
Subprime recoveries declined to a greater extent, slumping to 40.18% in July 2023 from 47.40% in June 2023 and 44.89% in July 2022. This drop takes recovery rates below the pre-pandemic levels of 44.16% and 42.28% in June and July 2019, respectively. Recovery rates declined the most for Santander Drive Auto Receivables Trust, Drive Auto Receivables Trust, Westlake Automobile Receivables Trust, and Exeter Automobile Receivables Trust. These issuers made up 62% of the subprime composite in July 2023.
The decline in subprime recoveries should, however, be judged relative to the approximately 8.00% drop in used vehicle values year-over-year, as shown by the Manheim used vehicle value index (see chart 2). Additionally for 2015-2019, the five-year average July subprime recovery rate was 40.60%, so July 2023's 40.18% rate is not far from the historical average.
|Recovery rate composite(i)|
|Subprime modified (%)(ii)||N/A||46.30||44.53||40.38||38.05||41.23||42.51||55.99||59.61||45.03||46.47||40.08|
|(i)Represents monthly recovery rates. (ii)Excludes American Credit Acceptance, Exeter, and DRIVE. N/A--Not applicable.|
Delinquencies Weakened Further, Reaching Highest Ever July Subprime Levels
The prime 60-plus-day delinquency rate increased to 0.52% in July 2023 from 0.49% in June 2023 and 0.45% in July 2022. The subprime 60-plus-day delinquency rate also increased in July 2023 to 5.89% from 5.37% in June 2023 and 5.34% in July 2022. In addition, delinquencies remained higher than their July 2019 pre-pandemic levels of 0.41% for prime and 5.30% for subprime, and reached the highest July level since 2011 for prime and highest ever for subprime.
We attribute these rising delinquencies to consumers facing financial stress from inflationary pressures, the fading benefit of COVID-19-related support, and growth in originations that came at the expense of credit quality.
|60-Plus-Day delinquency rate composite|
|Subprime modified (%)(i)||N/A||3.43||3.46||3.75||3.61||3.56||3.75||2.45||2.09||3.70||4.33||4.81|
|(i)Excludes American Credit Acceptance, Exeter, and DRIVE. N/A--Not applicable.|
Auto Loan ABS Rating Activity/Revised Loss Expectations
In August 2023, we revised our loss expectations and took a number of rating actions (see table 4).
|Rating action (by class)||Expected cumulative net losses (No. of transactions)|
|Silver Arrow Canada L.P.||Aug. 10, 2023||1||2||1|
|Nissan Auto Receivables Owner Trust||Aug. 15, 2023||1||3||1|
|Santander Consumer Auto Receivables Trust||Aug. 23, 2023||2||3||6||1||1|
|Westlake Automobile Receivables Trust||Aug. 16, 2023||9||32||12||6||3|
August's analysis resulted in 35 upgrades, 23 affirmations and no downgrades, bringing the total number of U.S. and Canada auto loan ABS-related upgrades to 212, and zero, respectively. Although we're seeing significant deterioration in the subprime space, a few lenders are continuing to report favorable performance trends. As noted in last month's tracker Westlake, AmeriCredit, and DriveTime are three such entities.
|Historical ratings activity--U.S. ABS auto loans|
|(i)As of Aug. 31, 2023.|
|Historical ratings activity--Canadian ABS auto loans|
|(i)As of Aug. 31, 2023.|
For the 13 transactions we reviewed in August, we lowered our expected cumulative net losses (ECNLs) on nine and maintained them on four.
|Nissan Auto Receivables Owner Trust|
|Series||Original lifetime CNL exp.||Former lifetime CNL exp.||Revised lifetime CNL exp.(i)|
|(i)Revised as of August 2023. CNL exp.--Cumulative net loss expectations. N/A–-Not applicable.|
|Westlake Automobile Receivables Trust|
|Series||Original lifetime CNL exp.||Former lifetime CNL exp.(i)||Revised lifetime CNL exp.(ii)|
|2019-3||13.25 (13.00-13.50)||7.50 (7.25-7.75)||Up to 7.50|
|2020-1||13.25 (13.00-13.50)||7.25 (7.00-7.50)||Up to 6.75|
|2020-2||15.00 (14.75-15.25)||6.75 (6.50-7.00)||Up to 5.75|
|2020-3||15.00 (14.75-15.25)||8.75 (8.25-9.25)||6.25|
|2021-1||13.75 (13.50-14.00)||9.00 (8.75-9.25)||7.50|
|2021-2||13.75 (13.50-14.00)||10.00 (9.75-10.25)||9.50|
|(i)Revised in September 2022 for all series except 2020-3, which was revised in February 2022. (ii)Revised as of August 2023. CNL exp.--Cumulative net loss expectations. N/A--Not applicable.|
|Santander Consumer Auto Receivables Trust|
|Series||Original lifetime CNL exp.||Prior lifetime CNL exp.||Revised lifetime CNL exp.|
|(i)Revised in September 2022. (ii)Revised as of August 2023. CNL exp.--Cumulative net loss expectations.|
|Silver Arrow Canada L.P.|
|Series||Original lifetime CNL exp.||Former lifetime CNL exp.||Revised lifetime CNL exp. (i)|
|(i)Revised as of August 2023. CNL exp.--Cumulative net loss expectations. N/A–-Not applicable.|
Appendix I: 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 3.25% or less and average FICO scores of 700 or higher. We include CarMax and Carvana in this segment.
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. 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 2023 Performance," published Aug. 15, 2023.
- Three Ratings Raised And Six Affirmed On Santander Consumer Auto Receivables Trust 2020-A And 2020-B Notes, Aug. 23, 2023
- Thirty-Two Ratings Raised And 12 Affirmed On Nine Westlake Automobile Receivables Trust Transactions, Aug. 16, 2023
- Three Ratings Affirmed On Nissan Auto Receivables 2022-B Owner Trust , Aug. 15, 2023
- U.S. Auto Loan ABS Tracker: June 2023 Performance, Aug. 15, 2023
- Ratings Affirmed on Two Classes From Silver Arrow Canada LP Series 2022-1, Aug. 8, 2023
- Seniority Has Its Privileges: Some 2022 Subprime Auto ABS Senior Classes Upgraded Despite Weaker Collateral Performance, July 12, 2023.
- Scenario Analysis: The Potential Impact Of A Recession On Prime Auto Loan ABS Ratings, April 12, 2023
- How The Next Downturn Could Affect U.S. Subprime Auto Loan ABS Ratings, Dec. 8, 2022
This report does not constitute a rating action.
|Primary Credit Analyst:||Amy S Martin, New York + 1 (212) 438 2538;|
|Secondary Contacts:||Jennie P Lam, New York + 1 (212) 438 2524;|
|Steve D Martinez, New York + 1 (212) 438 2881;|
|Sanjay Narine, CFA, Toronto + 1 (416) 507 2548;|
|Research Contributor:||Kapil Sharma, CRISIL Global Analytical Center, an S&P affiliate, Mumbai|
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