U.S. auto loan collateral performance followed the seasonal pattern of weakening as the holiday season approached: losses increased month over month in the prime and subprime segments, subprime delinquencies increased, and subprime recoveries declined.

Prime And Subprime Losses Increased

U.S. prime auto loan losses increased to 0.68% in October 2019 from 0.57% in September 2019 and 0.62% in October 2018 (see table 1 and chart 1). Performance weakened across most of the index.

Subprime losses increased 92 basis points (bps) to 9.32% in October 2019 from September 2019, and 13 bps from October 2018. After netting out three deep subprime issuers (including Drive Auto Receivables Trust), modified subprime losses increased by 54 bps month over month to 6.42% in October 2019. On an annual basis, however, the modified index improved from 7.25% in October 2018.

Table 1

Chart 1

Prime Monthly Recoveries Improved, But Subprime Recoveries Declined

Prime recoveries improved by 31 bps to 54.20% in October 2019 from 53.90% in September 2019, though they declined from 56.78% in October 2018 (see table 2 and chart 2). Subprime recoveries decreased to 39.59% in October 2019 from 40.70% in September 2019 and 40.09% in October 2018. Subprime modified recoveries decreased to 36.17% in October 2019 from 38.91% in September 2019 and 40.19% in October 2018.

The decline in recoveries is expected with the onset of the holiday season and the continued depreciation of the used car market from its summer high levels.

Table 2

Chart 2

Subprime And Modified Subprime Delinquencies Decreased Year Over Year

The prime 60-plus-day delinquency rate remained stable at 0.43% in October 2019 compared with 0.42% in September 2019, but it increased slightly from 0.40% in October 2018 (see table 3 and chart 3).

The subprime 60-plus-day delinquency rate increased to 5.32% in October 2019 from 5.22% in September 2019, but it improved slightly from 5.50% in October 2018. On a modified basis, after netting out three deep subprime lenders, the subprime modified 60-plus-day delinquency rate decreased to 3.41% in October 2019 from 3.59% in September 2019 and 3.88% in October 2018.

Table 3

Chart 3

Revised Loss Expectations

In November 2019, we revised our loss expectations for the following transactions:

• Five American Credit Acceptance Receivables Trust transactions backed by subprime auto loan receivables;
• Five Drive Auto Receivables Trust transactions backed by subprime auto loan receivables;
• Five Santander Drive Auto Receivables Trust transactions backed by subprime auto loan receivables;
• Three Ally Auto Receivables Trust transactions backed by prime auto loan receivables;
• Four GM Financial Consumer Auto Receivables Trust transactions backed by prime auto loans receivables; and
• One Huntington Auto Trust transaction backed by prime auto loan receivables.

Of the 23 transactions we reviewed, we lowered our expected cumulative net losses (CNLs) for 19, maintained them for four.

Table 4

Table 5

Table 6

Table 7

Table 8

Table 9

Historical Ratings Activity

Through November 2019, our reviews resulted in 384 upgrades and five downgrades.

Table 10

Appendix II: Auto Tracker Methodology And Definitions--Frequently Asked Questions

Effective with our U.S. auto loan ABS tracker report, "U.S. Auto Loan ABS Tracker: Full-Year 2017 And December 2017 Performance," published on Feb. 22, 2018, we modified our methodology for calculating the loss, delinquency, and recovery rates reported. Under the new methodology, we do not incorporate a transaction's performance into the composite results until it has been outstanding for four months. We have applied the new methodology to transactions that closed in December 2005 and thereafter.

How do you define prime auto loan ABS?

We generally categorize prime auto loan ABS transactions as those backed by loan pools with initial expected CNLs of 3.00% or less, average FICO scores of 700 or higher, and annual percentage rates (APRs) of 0.00%-5.00%.

How do you define subprime auto loan ABS?

We generally categorize subprime auto loan ABS transactions as those backed by loan pools with initial expected CNLs of at least 7.50%, average FICO scores of less than 620, and APRs that exceed 14.00%.

How do you calculate the monthly net loss rate?

The monthly net loss rate is annualized. It equals each transaction's net loss rate weighted by the transaction's ending pool balance for the current month over the aggregate ending pool balance of all transactions included in the index.

We only allow a transaction to enter the composite starting in its fourth month outstanding. Transactions usually have zero or low losses during their first three months, which dilutes the composite figures.

How do you calculate the monthly recovery rate?

We calculate recoveries by taking the recovery amount reported (which typically includes all recoveries, including disposition proceeds, post-disposition proceeds, and any other reported recoveries) over the gross loss amount for the current month. We then weight each transaction's recovery percentage by the transaction's ending pool balance for the current month over the aggregate ending pool balance of all transactions included in the index.

We only allow a transaction to enter the index starting in its fourth month outstanding. During a transaction's first three months, unusually high or low recoveries are reported, leading to a spike in the composite figures. Previously, we often excluded recovery rates in the first two months of a deal's life because of negative recovery rates (resulting from recoveries exceeding gross losses).

How do you calculate the monthly 60-plus-day delinquency rate?

We calculate delinquencies by taking each transaction's 60-plus-day delinquency amount over the ending pool balance for the current month. We then weight each transaction's 60-plus-day delinquency percentage by the transaction's ending pool balance for the current month over the aggregate ending pool balance of all transactions included in the composite.

We only allow a transaction to enter the composite starting in its fourth month outstanding. During the transaction's first three months, zero or lower delinquencies are reported, which dilutes the composite figures.

What is the ALSI?

Our ALSI monitors the credit performance of securitizations that were originated in the same year on a weighted average basis. The number of months displayed for each vintage is generally determined by the last point that all securitizations for that time period have a data point. We calculate the prime and subprime ALSI CNLs by taking the weighted average of the CNLs of the transactions that were completed in the same time period (generally a year). Each transaction's CNL is weighted by its initial pool balance over the aggregate initial pool balance of all the transactions included in the index for that period. In the subprime ALSI, transactions from Byrider Finance LLC (doing business as CarNow Acceptance Corp.), Credit Acceptance Corp., and DriveTime Automotive Group Inc. are excluded because they do not have the typical indirect auto loan business model.

Which transactions are included in the prime, subprime, and modified subprime composites and indices?

For a list of the transactions included in our prime, subprime, and modified subprime composites and indices, see "U.S. Auto Loan ABS Tracker: March 2019," published on May 23, 2019. However, note that we subsequently added S&P Global Ratings-rated transactions that have since closed, most prime transactions that closed and were not rated by S&P Global Ratings from 2016 through the present, and the Santander transactions S&P Global Ratings did not rate.

Related Research

• Twelve Ratings Raised, Five Affirmed On Six Drive Auto Receivables Trust Transactions, Nov. 20, 2019
• 13 Ratings Raised, Three Ratings Affirmed On Five Santander Drive Auto Receivables Trust Transactions, Nov. 19, 2019
• Five GM Financial Consumer Auto Receivables Trust Ratings Raised, 17 Affirmed, On Four Transactions, Nov, 15, 2019
• One Rating Raised And Three Ratings Affirmed On One Huntington Auto Trust Transaction, Nov. 13, 2019
• Seven Ratings Raised And Nine Affirmed From Three Ally Auto Receivables Trust Transactions, Nov. 8, 2019
• Ratings Raised On Twenty-One Classes From Five American Credit Acceptance Receivables Trust Deals; One Rating Affirmed, Nov. 1, 2019
• Speed Bump Ahead: As Auto Loans Accelerate Toward 84 Months, Caution Is Warranted, Sept. 18, 2019
• U.S. Prime Auto Loan ABS Are Seeing More Back-Loaded Losses As Loan Terms Lengthen, July 30, 2019
• Subprime Auto Loan ABS Tracker: Losses Have Stabilized, But Renewed Growth Bears Watching, April 29, 2019
• The Severity Of Subprime Auto Loan Delinquencies Is In The Eye Of The Beholder, March 18, 2019
• 10-Year Retrospective: Changes In U.S. Auto ABS In The Decade Since The Great Recession, Feb. 15, 2019
• Is There Extension Tension In U.S. Subprime Auto Loan ABS? Nov. 29, 2018