NEW YORK -

Fitch Ratings reported U.S. auto loan ABS delinquencies and losses climbed in July on a monthly basis. However, Fitch expected such a movement, so the firm contends that asset performance in the sector should moderate further in the remainder of the year, but remain on track within initial loss expectations.

Analysts also said that prime and subprime annualized losses posted double-digit increases, while subprime delinquencies rose 5 percent year-over-year in July.

“This partly reflects typical seasonal patterns entering the weaker summer months, and the third consecutive month of softer used vehicle values,” analysts said.

Fitch indicated that prime 60-day delinquencies climbed 14 percent month-over-month in July to 0.33 percent, but the reading was unchanged from July of last year.

The firm noted prime annualized net losses jumped 21 percent in July to 0.29 percent, marking a 6.5 percent improvement versus a year earlier.

“Current loss rates are low on a historic basis, with this year’s peak annualized net losses rate at 0.49 percent in February and 0.44 percent in 2013,” analysts said.

In the subprime sector, Fitch determined 60-day delinquencies rose to 3.28 percent in July, up 13.5 percent month-over-month.

Fitch also mentioned annualized net losses in the subprime space spiked 34 percent to 4.96 percent in July to the same level recorded in March this year.

Analysts pointed out that July’s loss rate was 11.5 percent higher than what they saw in July of last year but below the peak of 5.50 percent level for the month of July recorded back in 2005, which they said was a strong period historically.

“Despite recent headlines about looser underwriting standards and aggressive expansion by auto lenders in 2014, particularly in the subprime sector, asset performance remains on track and within Fitch's initial loss expectations,” analysts said.

“Fitch expects loss rates to climb through the end of 2014 driven by weakening used-vehicle values and higher loss severity,” they continued. “However, Fitch believes asset performance will be in line with or will improve on the strong 2005-2006 period.”

As Fitch also expected, the firm noted used-vehicle values declined for the third consecutive month in July, as used-vehicle supply continues to rise on an annual basis driven by higher off-lease and trade-in volumes relative to the last four years.

The Manheim Used Vehicle Value Index was at 122.7, which was 1.5 percent higher than July of last year and only slightly down from the peak 2014 level (124.9).

Fitch cited Manheim’s analysis that explained used-vehicle pricing is still strong on a historical basis so far this year, and the recent modest declines can be attributed to adjustments that were expected to occur earlier this year.

“Despite this, Fitch is focused on the wholesale vehicle market in 2014 going into 2015, given the higher used-vehicle volumes entering the market, and its potential impact on wholesale prices and loss levels,” analysts said.

Fitch added that ratings performance is on track to post the highest number of upgrades going back to 2007 (95 upgrades), with 44 upgrades issued through July this year.

“Fitch expects this trend to continue in the remaining four months of the year as transactions amortize down and credit enhancement builds rapidly,” analysts said.

Fitch's indices track the performance of $76.5 billion of outstanding prime and subprime auto ABS as 64 percent of the index is comprised of prime auto ABS, and the remaining 26 percent subprime auto ABS.