U.S. auto loan collateral performance saw mixed results month over month in November. Prime performance improved with declining loss rates and higher recoveries, while subprime performance continued to normalize with increasing loss rates and declining recoveries. However, prime and subprime delinquencies both continued to worsen as the year closed due to seasonal factors and early signs of consumer financial stress, with delinquencies rising month over month, year over year, and even exceeding the November 2019 pre-pandemic levels.

Given the growing concern about a potential recession this year and the impact it could have on the subprime auto loan ABS that are rated by S&P Global Ratings, we recently conducted a scenario analysis (see "How The Next Downturn Could Affect U.S. Subprime Auto Loan ABS Ratings," published Dec. 8, 2022).

Losses Declined Month Over Month For Prime But Increased For Subprime

Prime losses decreased month over month to 0.45% in November, but increased year over year from 0.33% in November 2021 when recoveries were approximately 72.00% (see table 1 and chart 1). Further, prime losses remained approximately 33.00% below the pre-pandemic level of 0.67% in November 2019.

Subprime losses increased month over month to 8.29% in November, as well as year over year from 4.57% in November 2021 and from 8.75% in November 2019. Moreover, after netting out the three largest deep subprime issuers (American Credit Acceptance, Exeter Automobile Receivables Trust, and Drive Auto Receivables), modified subprime losses rose to 6.79% year over year from 6.59% in November 2019.

Table 1

Chart 1

Recoveries Increased Month Over Month For Prime But Declined For Subprime

Prime recoveries increased to 65.84% in November from 52.07% the prior month, and from 53.52% in November 2019. GM Financial Consumer Automobile Receivables Trust, Honda Auto Receivables Owner Trust, Hyundai Auto Receivables Trust, and Capital One Prime Auto Receivables Trust, which combined represent approximately 37.85% of the prime index, reported higher recoveries in November 2022. These four issuers saw recoveries rise to 76.44%, 338.28%, 60.71%, and 125.54% in November, respectively, from 56.64%, 65.62%, 52.53%, and 54.97% the prior month.

Subprime recoveries declined to 39.28% in November from 42.51% a month earlier. However, they are marginally higher than the November 2019 pre-pandemic level of 38.84% (see table 2 and chart 2). Some issuers have reported lower recoveries because of increased full-balance charge-offs from longer-than-usual vehicle repossession times due to the shortage of repossession agents.

We expect recovery rates to continue to normalize as new vehicle supply imbalances ease and higher auto loan borrowing rates reduce used vehicle demand.

Table 2

Chart 2

Delinquencies Rose Month Over Month And Continue To Exceed Pre-Pandemic Levels

The prime 60-plus-day delinquency rate increased month over month to 0.51% in November from 0.48% in October, and it is approximately 13% higher than the November 2019 pre-pandemic level of 0.45% (see table 3 and chart 3). Similarly, the subprime 60-plus-days delinquency rate rose to 5.72% in November from 5.29% a month earlier, and it is approximately 6.00% higher than the November 2019 pre-pandemic level of 5.37%.

Table 3

Chart 3

Extension Rates Fell Month Over Month But Remain Above Pre-Pandemic Levels

Prime and subprime issuers both saw improved extension rates month over month in November when rates fell from the elevated levels reached in October because of Hurricane Ian (see the Prime Extension Rates section below for more details). However, despite this decline, extensions increased both year over year and relative to the November 2019 pre-pandemic levels. Although prime extensions declined to 0.42% in November from 0.46% the previous month, it is higher than the 0.37% reported in November 2021 and the 0.40% in November 2019. Similarly, extensions for subprime public and 144a transactions declined in aggregate to 3.16% in November from 3.47% the prior month, but they exceeded the 2.81% reported in November 2021 and the 3.01% level in November 2019 (see chart 4).

Chart 4

Subprime extension rates

144a subprime issuer extensions decreased to a weighted average of 4.59% in November from 4.82% the prior month, but they were higher than the 3.85% reported in November 2021 and the November 2019 pre-pandemic level of 4.01%.

Similarly, extension rates for subprime public issuers decreased to a weighted average of 2.22% in November 2022 from 2.64% the previous month, but increased from 1.86% in November 2021 and 2.00% in November 2019.

Of the 17 subprime issuers we rated in November, six issuers reported higher month-over-month extension rates, while 15 reported a year-over-year increase. Ten issuers also reported increases from their November 2019 pre-pandemic levels (see table 4a).

Other noteworthy changes in November include the following:

• The top three issuers to report month-over-month declines were American Credit Acceptance Receivables Trust (fell 158 bps to 2.82% from 4.40%), Exeter Automobile Receivables Trust (143 bps to 3.81% from 5.24%), and United Auto Credit Securitization Trust (UACST; 95 bps to 4.48% from 5.43%).
• The top three issuers to report month-over-month increases were CPS Auto Receivables Trust (rose 75 bps to 3.82% from 3.66%), DT Auto Owner Trust (61 bps to 3.26% from 2.65%), and GLS Auto Receivables Trust (37 bps to 1.66% from 1.32%).
• The Westlake and UACST transactions had the highest extensions, at 6.80% and 4.48%, respectively.
• Westlake and Prestige Auto Receivables Trust reported the highest increase in extensions relative to the November 2019 pre-pandemic levels. Westlake's extensions rose 182 bps to 6.80% from 4.98% and Prestige's increased 172 bps to 4.07% from 2.35%.

Table 4a

Prime extension rates

The weighted average extension rate for prime auto issuers declined to 0.42% in November from 0.46% the previous month, but increased from 0.40% in November 2019. Of the 16 prime ABS auto issuers we rate, five reported higher month over month extensions, nine reported declines, and two reported stable levels (see table 4b).

Other notably changes in November include:

• The top three issuers to report month-over-month declines were World Omni Auto Receivables Trust (fell 26 bps to 0.64% from 0.91%), CarMax Auto Owner Trust (15 bps to 0.67% from 0.81%), and BMW Vehicle Owner Trust (5 bps to 0.11% from 0.16%).
• Nine prime issuers reported higher extensions than their November 2019 pre-pandemic levels. The three highest reported were Mercedes-Benz Auto Receivables Trust (rose 32 bps to 0.48% from 0.16%), CarMax (22 bps to 0.67% from 0.45%), and Harley-Davidson Motorcycle Trust (22 bps to 0.49% from 0.26%).
• Ford Credit Auto Owner Trust and CarMax reported the highest extension levels of 0.98% and 0.67%, respectively.

Table 4b

Extension rates for loans originated in Florida began to normalize in November as the rates declined for all public issuers that file REG AB II loan level data with the SEC. On a weighted average basis, prime extensions for Florida loans declined to 0.60% in November from 1.38% the prior month, while the subprime extensions fell to 2.38% from 5.57% (see table 4c).

Table 4c

Auto Loan ABS Rating Activity/Revised Loss Expectations

In December 2022, we revised our loss expectations and took the following rating actions:

• We affirmed 29 ratings on 12 Toyota Auto Receivables Owner Trust transactions (see "Ratings Affirmed On 29 Classes From 12 Toyota Auto Receivables Owner Trust Transactions," published Dec. 12, 2022).
• We raised 13 ratings and affirmed 28 ratings on 10 World Omni Auto Receivables Trust transactions (see "Thirteen Ratings Raised And 28 Affirmed From 10 World Omni Auto Receivables Trust Transactions," published Dec. 14, 2022).
• We raised 10 ratings and affirmed eight ratings on five AmeriCredit Automobile Receivables Trust transactions (see "Ten Ratings Raised And Eight Affirmed On Five AmeriCredit Automobile Receivables Trust Transactions," published Dec. 20, 2022).
• We raised two ratings on GTE Auto Receivables Trust 2019-1 (see "GTE Auto Receivables Trust 2019-1 Class B And C Ratings Raised," published Dec. 22, 2022).
• We raised three ratings and affirmed 10 ratings on three Canadian Pacer Auto Receivables Trust transactions (see "Three Ratings Raised And 10 Affirmed On Three Canadian Pacer Auto Receivables Trust Transactions," published Dec. 9, 2022).

These rating actions resulted in 28 upgrades and 75 affirmations, bringing the total number of upgrades on publicly rated U.S. and Canada auto loan ABS transactions to 416 and three, respectively, as of year-end 2022 (see tables 5 and 6).

We also took the following rating actions in the fourth quarter:

• We placed the class E notes from four Exeter Automobile Receivables Trust transactions on CreditWatch with negative implications following worse-than-expected performance and declines in the transactions' overcollateralization amounts (see "Exeter Automobile Receivables Trust 2022-1, 2022-2, 2022-3, And 2022-4 Class E Ratings Placed On CreditWatch Negative," published Dec. 22, 2022).
• We placed our ratings on four speculative-grade classes from two American Credit Acceptance Receivables Trust transactions on CreditWatch negative due to the transactions' continued overcollateralization decline (see "American Credit Acceptance Receivables Trust 2022-1 and 2022-2 Class E and F Ratings Placed On CreditWatch Negative," published Oct. 25, 2022).

These rating actions brought the total number of classes on CreditWatch negative to eight as of year-end 2022.

Table 5

Table 6

We lowered our expected cumulative net losses (ECNLs) on 31 of the 32 transactions we reviewed in August (see tables 7-13).

Table 7

Table 8

Table 9

Table 10

Table 11

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 3.00% 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 ECNLs 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. Then we 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. Then we 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 and subprime composites and indices, see "U.S. Auto Loan ABS Tracker: June 2022 Performance," published Aug. 17, 2022. However, note that we subsequently added transactions that have since closed.

Related Research

• Exeter Automobile Receivables Trust 2022-1, 2022-2, 2022-3 and 2022-4 Class E Ratings Placed On CreditWatch Negative, Dec. 22, 2022
• GTE Auto Receivables Trust 2019-1 Class B And C Ratings Raised, Dec. 22, 2022
• Ten Ratings Raised And Eight Affirmed On Five AmeriCredit Automobile Receivables Trust Transactions, Dec. 20, 2022
• Thirteen Ratings Raised And 28 Affirmed From 10 World Omni Auto Receivables Trust Transactions, Dec. 14, 2022
• U.S. Auto Loan ABS Tracker: October 2022 Performance, Dec. 13, 2022
• Ratings Affirmed On 29 Classes From 12 Toyota Auto Receivables Owner Trust Transactions, Dec. 12, 2022
• Three Ratings Raised And 10 Affirmed On Three Canadian Pacer Auto Receivables Trust Transactions, Dec. 9, 2022
• How The Next Downturn Could Affect U.S. Subprime Auto Loan ABS Ratings, Dec. 8, 2022
• Hurricane Ian Unlikely To Affect U.S. Auto ABS Ratings, Oct. 6, 2022.
• Credit Conditions North America Q1 2023: Worse Before It Gets Better, Dec. 1, 2022
• Economic Outlook U.S. Q1 2023: Tipping Toward Recession, Nov. 28, 2022
• American Credit Acceptance Receivables Trust 2022-1 and 2022-2 Class E and F Ratings Placed On CreditWatch Negative, Oct. 25, 2022