Discussing securitizations, used-car values and more, Fitch Ratings offered multiple projections on Monday, including how auto loan ABS asset performance is weakening from the economic slowdown given the economy’s susceptibility to reduced U.S. growth and trade.

Fitch is expecting a mild recession in Canada this year, with annual GDP growth slowing to 0.9%. Analysts said the unemployment rate was unchanged at 6.9% in July and remains near post-2016 peak levels, excluding the pandemic.

Analysts predicted the unemployment rate will reach 7.1% by the end of the year.

So, what do those overall trends mean for auto ABS?

Fitch first pointed out that Canadian ABS pools primarily consist of mostly prime obligors, with limited exposure to subprime borrowers.

“Canadian auto loan ABS delinquencies and losses continue to rise toward pre-pandemic levels, but performance remains within our stressed loss assumptions,” Fitch said in a news release. “Ratings are stable, with some subordinated note ratings on positive outlook, reflecting credit enhancement growth from deleveraging and loss coverage above our loss expectations.

“Vintage performance remains materially stronger than the weakest post recessionary vintages, 2014 and 2015,” analysts continued.

Fitch noted that auto ABS asset performance benefited in the first quarter from stronger recoveries and residual values. This was a result of higher used-vehicle demand, although auto prices recently declined due to seasonal effects and weakening consumer confidence from tariff uncertainty.

Fitch reiterated that Canadian Black Book’s Used Vehicle Retention Index fell 0.9% month-over-month in June to 139.1pts but remains up 2.8% year-over-year.

CBB forecasts a modest decline in its index in 2025, with depreciation around 9%, which is slightly stronger than 15% in 2024 for 2- to 6-year-old vehicles.

“Fitch expects used auto values to moderately decline due to macro pressures on consumers, although low off-lease supply and consumer demand shifting to used vehicles due to new vehicle supply shocks and higher prices will provide some offsetting impact,” analysts said.

Analysts added that CBB expects flat new-vehicle sales this year, with used supply declining 3% in 2025 and remaining low through 2027, “due to supply constraints and longer ownership periods amid high prices.”

Analysts went on to mention that all Fitch-rated lease transactions continue to show residual value gains, “albeit softened from prior highs and now at the lower end of historical performance.”

Fitch’s auto lease ABS residual value index came in at 16.4% in July, down from 20.2% in June and 21.0% in July 2019. Analysts said that index and has generally tracked CBB’s index.

“The asset performance outlook for auto lease ABS remains ‘neutral’, with only moderate decreases expected in used-vehicle values and continued, but lower, residual value gains,” Fitch said.

“Pools with higher electric vehicle (EV) concentrations are expected to face greater residual value pressure given softer demand and high dependence on federal incentives, Fitch continued, as analysts noted new EV sales fell 37% year-over-year between February and May following the end of the federal EV rebate program.

Analysts said the EV adoption rate dropped to 7.9% in May from 13.0% a year earlier.