Fitch Ratings insisted that March’s drop in delinquencies connected with U.S. subprime auto ABS — after hitting a 20-year high in February — represents a “reprieve” that is “not likely to last.”

According to in the firm’s latest monthly index results, delinquencies on U.S. subprime auto ABS decreased to 4.15 percent in March reporting from the 20-year high of 5.16 percent analysts spotted in the February data. Fitch then explained why the one-month reduction isn’t likely to continue.

“Driving the decline was borrowers taking advantage of tax returns to pay off debts,” analysts said. “The decline in delinquencies, while still 16.5 percent greater than the same period in 2015, follows seasonal trends observed in Fitch's Auto ABS Indices.

“Performance metrics will improve as 2016 shifts into the spring months, though to what extent remains to be seen,” they went on to say.

Fitch also reported that subprime annualized net losses improved in March, declining to 8.58 percent from 9.74 percent. Despite the positive shifts downward, the firm’s report pointed out that net losses last month still came in 30.4 percent higher over same period a year earlier.

“Pressure from weaker underwriting standards in 2013 to 2015 transactions will continue to negatively affect the indices in 2016 irrespective of seasonal trends,” analysts said.

“Increased lending to borrowers with weak or limited credit history will move delinquency and loss frequency levels higher, while negative shifts in (loan-to-value) and extended term loans will drive loss severity up,” they went on to say.

Fitch reiterated a point mentioned in its previous update — that weaker underwriting is largely coming from newer nonprime lenders who have entered the market since 2010 and now account for a larger portion of the index.

In 2010, Santander Consumer USA and GM Financial (formerly operating as AmeriCredit) accounted for 93.5 percent of the notes issued into the market. Today, Fitch calculated that the two finance companies account for 49.5 percent of the market, highlighting the significant growth of new operations.

“To gain market share, many lenders have weakened underwriting standards in the past few years due to the intense competition in the sector,” Fitch said.

Moving over to the prime sector, Fitch noticed lower delinquencies in March as the reading came in at 0.63 percent. That level was down from 0.69 percent spotted in February. Fitch added that losses in the prime space also fell to 8.58 percent from 9.74 percent.

“Consistent with the subprime sector, delinquencies and losses for the prime sector are higher versus the same period a year earlier, with delinquencies 5 percent higher and losses up notably by 55.6 percent. However, both metrics remain historically low and well below recessionary levels,” Fitch said.

The latest Fitch report also mentioned the Manheim Used Vehicle Index – which has been historically high over the past five years — declined again in March to 122.5 from 123.5 in February.

“The supply of used vehicles on the wholesale market is expected to balloon to historically high levels over the next three years, as a result of the large increase in the volume of off-lease vehicles and higher vehicle trade-in volumes,” Fitch said.

“If used-vehicle values decline, so too will recovery rates on repossessed vehicles, which will only confound issues and drive up loss rates, particularly in the subprime sector,” the firm went on to say.

Fitch’s prime auto loan ABS index currently includes 126 transactions with $62.9 billion in collateral outstanding while the subprime index includes 134 transactions with $38.1 billion outstanding.

“Fitch includes transactions in each index based on both historical platform cumulative net loss levels as well as collateral attributes. Certain platforms which do not fit the criteria for either index due to their unique nature are not included,” analysts said.