After what analysts classified as a few speed bumps, U.S. auto ABS is primed for a strong spring as seasonal trends kick in, according to the latest monthly index results from Fitch Ratings.
Analysts indicated prime and subprime annualized net losses sank 37 percent and 28 percent on a monthly basis in March, respectively.
“Strong seasonal patterns kicked in and should position the auto ABS sector for solid asset performance in the spring months,” Fitch said.
“March’s loss rates were within range of record lows recorded in the 2012-2013 period. Performance is also benefitting from the continual improvement in the U.S. economy while healthy used-vehicle values have been stronger in recent months,” analysts continued.
Fitch reported prime 60-day delinquencies declined 21 percent month-over-month to 0.61 percent through the first quarter. The firm noted annualized net losses declined to 0.31 percent in March, down from 0.49 percent in February. Both indices settled 6 percent below the levels recorded a year earlier in 2013.
Analysts highlighted similar improvements were evident in the subprime sector.
Fitch noticed 60-day subprime delinquencies dropped 100 basis points to 2.80 percent through March, marking a 7-percent improvement compared to March of last year. The latest information also showed annualized net losses declined to 4.96 percent, which was 6 percent below the same period in 2013 and the lowest level since September last year when it was 4.84 percent.
“Loss severity on defaulted and repossessed vehicles has been contained in recent months from strength in demand and values of used vehicles,” analysts said.
Fitch backed up that assessment by mentioning the Manheim Used Vehicle Value Index produced three months of consecutive improvements, rising to 124.4. This movement represents a 2.2-percent increase from the close of 2013 and is 3.3 percent higher than March of last year.
“Stronger used vehicle values support higher recovery rates in auto loan ABS,” analysts reiterated.
On the ratings front, Fitch reported positive ratings actions in 2014 have outpaced 2013 levels through the first three months. Upgrades of outstanding subordinate notes in 2014 totaled 18 through March, up 39 percent over the number issued in the first three months of 2013.