U.S. auto loan asset-backed securities (ABS) performance remained strong in November 2021. Prime and subprime losses remained below the abnormally low levels in November 2020 and were approximately 50% lower than in November 2019. Further, although 60-plus-day delinquencies rose both month over month and year over year, they remained lower than the November 2019 levels.

Recovery rates continued to be the main driver of performance. Prime and subprime recoveries, while elevated in November, at 72% and 50%, respectively, declined from more than from 100% and 70% in April and May. Prime and subprime losses rose as a result to 0.33% and 4.57%, respectively, from lows of approximately 0.02% and 1.50% in May 2021. However, even with the increase, losses remain considerably below pre-pandemic levels, indicating that substantial normalization still needs to occur before we return to pre-pandemic loss rates.

In December, we lowered our expected cumulative net loss levels on the 53 transactions we reviewed and upgraded 72 classes, bringing total upgrades for the year to a record 579. There were no downgrades.

S&P Global Ratings is currently requesting comments on its proposed methodology and assumptions for assessing the credit quality of consumer auto ABS (see "Comments Requested On Proposed Methodology And Assumptions For Rating Global Auto ABS," published Nov. 30, 2021). On Friday, Dec. 10, 2021, we hosted a webinar and Q&A on the "Proposed Global Auto ABS Criteria And Its Application In U.S. and Canada." A replay is available using this link.

Losses Remained Significantly Below Pre-Pandemic Levels

Prime net losses remained unchanged month over month at 0.33% in November, which is seven basis points lower than the November 2020 level and 51% lower than the November 2019 pre-pandemic rate (see table 1 and chart 1).

Subprime losses inched higher to 4.57% in November from 4.40% in October, but they were down from 4.87% in November 2020. They were also 48% lower than in November 2019 and significantly less than the eight-year (2012-2019) pre-pandemic November average of 8.31%.

Table 1

Chart 1

Prime And Subprime Recoveries Fell Slightly But Remained Strong

Prime recoveries decreased to 72.41% in November from 73.39% in October, but they increased from 69.32% in November 2020 and 53.52% in November 2019. Meanwhile, subprime recoveries dipped marginally to 50.02% in November from 50.44% in October, but they increased from 49.00% in November 2020 and 38.84% in November 2019. Both prime and subprime recoveries were significantly higher than their eight-year (2012-2019) November average of 57.02% and 39.49%, respectively (see table 2 and chart 2).

Table 2

Chart 2

We expect to see lower recovery rates for December 2021 and January 2022 due to seasonal trends. However, once consumers start receiving tax refunds, we will likely see the normal pattern of higher used vehicle values through the spring. Cox Automotive is currently forecasting used vehicle values to decline 3% year over year by December 2022. This would hardly be much of a decline, given that the Manheim Used Vehicle Value Index rose approximately 47% year over year as of November 2021.

We believe market fundamentals will support strong used vehicle values through 2022 (for more on our 2022 U.S. auto outlook, see "Global Structured Finance 2022 Outlook," published Jan. 12, 2022). The strengths include new vehicle supply shortages that will likely persist through the first half of 2022, pent-up demand, and continued low supply of used vehicles due to more lessees keeping their vehicles upon lease termination and rental car companies holding their vehicles longer. Still, we believe that used vehicle values will eventually normalize; and, as a result, we assume recovery rates will revert to historical levels when determining our expected cumulative net loss (ECNL) levels.

Delinquencies Rose But Remained Below Pre-Pandemic Levels

The prime 60-plus-day delinquency rate rose to 0.40% in November from 0.38% in October and 0.36% in November 2020. However, it remained well below the 0.45% recorded in November 2019 (see table 3 and chart 3). The subprime 60-plus-day delinquency rate grew to 4.40% in November from 3.85% in October and 4.02% in November 2020, but it remained below the 5.37% recorded in November 2019.

Table 3

Chart 3

We expect delinquencies to continue rising at a moderate pace during the next two months due to seasonal factors and inflationary pressures. Further, the Omicron variant could have a temporary adverse effect on performance to the extent hourly paid obligors are unable to work due to contracting the virus. However, we believe tax refunds, which generally start flowing in February, will be a tailwind that boosts performance. In any event, we believe delinquencies still have some room to rise before they fully return to pre-pandemic levels.

Extension Rates

Extensions remained substantially below peak COVID-19 levels in November and were generally in line with the November 2019 pre-pandemic rates (see chart 4). Public prime issuers reported a weighted average extension rate of 0.38% in November, compared with 0.34% in October, 0.55% in November 2020, and 0.40% in November 2019.

The overall subprime extension rate remained nearly unchanged at 2.97%, compared with 2.92% in October, but it was down dramatically from 4.16% in November 2020 and is in line with the 2.96% in November 2019. The extension rate for the large, public subprime issuers was 1.69% in November, down from 1.81% in October, 4.06% in November 2020, and 2.00% in November 2019. The weighted average extension rate for 144a subprime issuers clocked in at 3.85% in November, compared with 3.76% in October, 4.24% in November 2020, and 3.92% in November 2019.

Chart 4

Subprime extensions

Of the 16 subprime issuers in our dataset, half reported month-over-month declines in extensions, with ACA reporting the greatest reduction (to 2.28% from 3.05%). Westlake reported the highest month-to-month increase (to 5.92% from 4.45%), and it also had the highest level for the month (see table 4a).

Relative to November 2019, 10 issuers reported lower extension rates, while six reported higher levels. The six companies with higher rates were Westlake (5.92%; up from 4.98%), Flagship (3.82%; up from 2.84%), Avid (3.49%; up from 2.04%), Prestige (2.97%; up from 2.35%), DriveTime (2.68%; up from 2.12%), and Tidewater (2.38%; compared with 2.23%). Avid's increase was due to the series 2018-1 notes being called, which resulted in a smaller denominator relative to the remaining extensions and, thus, a higher extension rate.

We modified our reporting of DriveTime's extension rates in this month's report. We previously used the data provided in DriveTime's monthly servicing reports, which is on an account basis for all transactions through series 2021-2, versus on a dollar basis, which is the method used by the other issuers. The extensions reported in DriveTime's monthly servicing reports (MSRs) also exclude deferrals due to Federal Emergency Management Agency (FEMA) type disasters (including the COVID-19 pandemic) since the extension trigger in its transactions excludes them. DriveTime had previously included a footnote in its MSRs noting the COVID-19-related extensions (which we had included in our reporting), but that was discontinued in July 2021. Given the differences in how DriveTime reports extensions in its MSRs for series 2021-2 and prior transactions relative to its peers, the company provided us with historical extensions on a dollar basis including FEMA-related extensions. Using this data, DriveTime's extensions fell to 2.68% in November from a peak of 8.88% in April 2020.

Table 4a

Prime extensions

Of the 18 prime issuers in our dataset, nine reported either no change or a slight decline in extensions relative to October 2021 (see table 4b). The largest decline came from Hyundai (which fell to 0.36% from 0.41%). The largest increase came from CarMax, whose deferrals rose to 0.45% from 0.25%--though this was in line with its November 2019 extension rate. Ford Credit also posted a sizeable increase to 0.97% from 0.83%, and it had the highest level of its peer group. Nonetheless, Ford Credit's prime extension rate was only slightly higher than the 0.85% reported in November 2019 and lower than the 1.17% in December 2019 and 0.97% in January 2020.

Table 4b

Auto Loan ABS Rating Activity/Revised Loss Expectations

In December, we revised our loss expectations and took the following rating actions:

• We raised 23 ratings and affirmed six ratings from seven First Investors Auto Owner Trust Transactions (see "Twenty-Three Ratings Raised And Six Affirmed On Seven First Investors Auto Owner Trust Transactions," published Dec. 2, 2021).
• We raised 10 ratings and affirmed three ratings from seven Santander Drive Auto Receivables Trust transactions (see "Ten Ratings Raised And Three Affirmed On Seven Santander Drive Auto Receivables Trust Transactions," published Dec. 6, 2021).
• We raised 20 ratings and affirmed seven ratings from 13 Drive Auto Receivables Trust transactions (see "Twenty Ratings Raised And Seven Affirmed On 13 Drive Auto Receivables Trust Transactions," published Dec. 6, 2021).
• We raised nine ratings and affirmed six ratings from three Capital One Prime Auto Receivables Trust transactions (see "Nine Ratings Raised And Six Affirmed On Three Capital One Prime Auto Receivables Trust Transactions," published Dec. 8, 2021).
• We affirmed three rating from USAA Auto Owner Trust (see "USAA Auto Owner Trust 2019-1 Ratings On Three Classes Affirmed," published Dec. 10, 2021).
• We raised four ratings and affirmed 30 ratings from 12 Toyota Auto Receivables Owner Trust Transactions (see "Toyota Auto Receivables Owner Trust Ratings Raised On Four Classes, Affirmed On 30 From 12 Transactions," published Dec. 15, 2021).
• We raised six ratings and affirmed 34 ratings from 10 World Omni Auto Receivables Trust Transactions (see "Six Ratings Raised And 34 Affirmed From 10 World Omni Auto Receivables Trust Transactions," published Dec. 22, 2021).

These rating actions resulted in 72 upgrades and 89 affirmations, bringing the total number of upgrades on public U.S. auto loan ABS to a record 579 in 2021 (see table 5).

Table 5

We lowered our ECNLs on all 53 transactions we reviewed in November (see tables 6-10).

Table 6

Table 7

Table 8

Table 9

Table 10

Table 11

Table 12

Appendix: Auto Tracker Frequently Asked Questions

How do you define prime auto loan ABS?

We generally categorize prime auto loan ABS transactions as those backed by loan pools with initial ECNLs of 3.0% or less, average FICO scores of 700 or higher, and annual percentage rates (APRs) of 0.0%-5.0%.

How do you define subprime auto loan ABS?

We generally categorize subprime auto loan ABS transactions as those backed by loan pools with initial ECNLs of at least 7.5%, average FICO scores of less than 620, and APRs that exceed 14.0%.

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.

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 fewer delinquencies are reported, which dilutes the composite figures.

What is the Auto Loan Static Index (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 month 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 May 23, 2019. However, note that we subsequently added transactions rated by S&P Global Ratings that have since closed, most prime transactions that closed and were not rated by S&P Global Ratings from 2016 through the present, and most Santander Drive Auto Receivables Trust and AmeriCredit Automobile Receivables Trust transactions not rated by S&P Global Ratings.

Related Research

• Global Structured Finance 2022 Outlook, Jan. 12, 2022
• Comments Requested On Proposed Methodology And Assumptions For Rating Global Auto ABS, Nov. 30, 2021
• Economic Outlook U.S. Q1 2022: Cruising At A Lower Altitude, Nov. 29, 2021
• Six Ratings Raised And 34 Affirmed From 10 World Omni Auto Receivables Trust Transactions, Dec. 22, 2021
• Toyota Auto Receivables Owner Trust Ratings Raised On Four Classes, Affirmed On 30 From 12 Transactions, Dec. 15, 2021
• USAA Auto Owner Trust 2019-1 Ratings On Three Classes Affirmed, Dec. 10, 2021
• Nine Ratings Raised And Six Affirmed On Three Capital One Prime Auto Receivables Trust Transactions, Dec. 8, 2021
• Twenty Ratings Raised And Seven Affirmed On 13 Drive Auto Receivables Trust Transactions, Dec. 6, 2021
• Ten Ratings Raised And Three Affirmed On Seven Santander Drive Auto Receivables Trust Transactions, Dec. 6, 2021
• Twenty-Three Ratings Raised And Six Affirmed On Seven First Investors Auto Owner Trust Transactions, Dec. 2, 2021
• Auto Loan ABS COVID-19 Loss Adjustment Reassessed After Better-Than-Expected Performance, July 8, 2021
• U.S. Auto Loan ABS Tracker: March 2019, May 23, 2019