In what might not be surprising to top company executives, Fitch Ratings recently acknowledged that auto finance companies are likely to see loan asset quality weaken in 2015, with annualized net losses moving closer to their historical averages.

While prime auto loans continue to perform well, Fitch indicated subprime auto loan ABS annualized net losses are deteriorating at a “quicker pace”, recently crossing 8 percent before dropping to 7.26 percent as of the end of February.

Analysts pointed out the level is above the 10-year average of 6.24 percent, but below the past recession peaks of 9 percent to 13 percent.

 “Fitch expects subprime auto loan performance to continue to soften modestly in 2015 due to heated competition-driving declines in subprime loan pricing, easing underwriting standards and moderation in used-car values,” analysts said.

“These factors contribute to Fitch's negative 2015 sector outlook for finance and leasing companies, but at this stage they are viewed as manageable relative to available capital levels and current auto lender ratings,” they continued. “For auto ABS, asset performance remains in line with loss expectations and Fitch’s outlooks are stable for prime and subprime auto loan ABS performance.”

While Fitch noted manufacturers have been disciplined on new-vehicle production and incentive spending, the firm emphasized that strong overall vehicle sales have kept the industry vulnerable to competitive pressures.

“We believe loan demand is likely to remain strong amid improving economic indicators in the U.S., despite an increase in consumer indebtedness,” analysts said.

Fitch sees not only an easing of overall credit terms (inclusive of loan term, pricing and down payments), but also a decline in average FICO scores.

“These factors have led to increases in subprime lending and a rise in subprime auto ABS issuance over the past year,” Fitch said.

“We see the eased standards being driven by smaller, less capitalized market participants, some backed by private equity capital,” analysts continued. “These lenders are competing to win market share and capture increased loan yields. We see loosened standards likely to affect the performance of the 2014 and 2015 loan vintages.”

Fitch went on to mention that against the backdrop of easing loan standards are the counterforces of an “improving” macro environment and currently “healthy” used-vehicle values, which help underpin the stable outlooks on auto ABS.

The firm recapped that U.S. auto loan and lease credit losses and delinquency rates increased in the second half of last year due to the seasonal effect of lower available consumer discretionary spending and, despite picking up in the fourth quarter, an overall decline in recovery values on used vehicles.

The average net loss rate for Fitch rated finance companies was 1.06 percent in the fourth quarter, up 5 basis from the end of 2013. Average 30-day delinquencies stood at 3.96 percent, an increase of 7 basis points since the fourth quarter of 2013.

Fitch explained the metrics are “reflecting continued easing of underwriting standards and higher nonprime lending. Both metrics still remain comfortably below pre-crisis levels.”

The top nine Fitch-rated auto finance companies, including captives, held about $450 billion of auto loans at year end. Of the nine, only General Motors Financial and Capital One have any “meaningful” subprime exposure in their loan portfolios, according to Fitch.