Key Takeaways
- U.S. auto loan ABS performance was mixed in May 2023, with prime losses declining to lower than pre-pandemic levels and subprime losses demonstrating a slight rise but remaining below May 2019's level.
- Delinquencies ticked up to the highest level for the month of May since May 2011 for prime and highest ever for subprime, although the subprime segment has become more heavily weighted with deep subprime lenders since 2015 (even after accounting for the absence of one large deep subprime lender platform since November 2021).
- In June, we evaluated 14 transactions, which resulted in 19 upgrades, one downgrade, and 24 affirmations. We lowered our expected cumulative net losses on seven of these transactions, increased them on four (all subprime), and maintained them on three.
Prime Losses Continue To Demonstrate Lower Losses While Subprime Losses Increased
Prime net losses demonstrated strong performance and decreased to 0.32% in May 2023 from 0.41% in April 2023. While this was higher than the 0.20% level a year earlier when consumers were still flush with COVID-19-related savings, it was lower than the 0.40% for May 2019, due in part to continued strength in recovery rates. Prime losses fell month-over-month for many issuers, with CarMax Auto Owner Trust (CarMax) and Toyota Auto Receivables Owner Trust (Toyota) being the major contributors to the decrease in losses, together making up approximately 26.00% of the total prime index.
After three consecutive months of lower net charge-offs, subprime losses increased slightly to 5.88% in May 2023 from 5.56% in April 2023 and were approximately 47.00% higher than May 2022's 4.01%. We attribute the month-to-month increase to tax refund season ending and the year-over-year increase to the fading benefit of COVID-19-related pandemic support/relief payments and lower-quality originations in 2022. Although losses rose, they were still lower than the pre-pandemic loss level for May 2019 of 6.34%. This was due to 13 of the 16 issuers (that had collateral outstanding as of May 2019 and May 2023) reporting lower losses and a decline in deep subprime composition--made up of three issuing platforms: Exeter Automobile Receivables Trust (Exeter), Drive Auto Receivables Trust (Drive), and American Credit Acceptance Receivables Trust (ACA)--to approximately 26.00% in May 2023, compared to approximately 38.00% in May 2019. The absence of Drive since November 2021 was the driving factor for this decrease. Those issuers reporting higher average losses for May 2023 than May 2019 were Avid Automobile Receivables Trust, GLS Auto Receivables Issuer Trust, and United Auto Credit Securitization.
After netting out the deep subprime issuers (ACA, Exeter, and Drive), modified subprime losses increased by 33 basis points to 5.42% in May 2023 from 5.08% in April 2023 and were slightly higher than May 2019's level of 5.37%. The divergence in performance, with modified subprime's losses exceeding May 2019's level while the overall subprime composite improved, points to the fact that the deep subprime lenders as a group declined as a percentage of the overall subprime composite relative to 2019 due to DRIVE's issuance absence since November 2021. In addition, losses have declined substantially on Drive's outstanding transactions (2019-2 through 2021-3) relative to May 2019, and Exeter also reported an improvement over the same time period.
Table 1
| Net loss rate composite(i) (%) | ||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| May-09 | May-14 | May-15 | May-16 | May-17 | May-18 | May-19 | May-20 | May-21 | May-22 | Apr-23 | May-23 | |||||||||||||||
| Prime | 1.55 | 0.28 | 0.30 | 0.41 | 0.49 | 0.40 | 0.40 | 0.55 | 0.02 | 0.20 | 0.41 | 0.32 | ||||||||||||||
| Subprime(ii) | 7.49 | 4.71 | 5.19 | 5.62 | 6.98 | 6.00 | 6.34 | 6.22 | 1.50 | 4.01 | 5.56 | 5.88 | ||||||||||||||
| Subprime Modified(iii)(iv) | N/A | 4.37 | 4.86 | 4.96 | 5.66 | 5.33 | 5.37 | 5.42 | 1.40 | 3.00 | 5.08 | 5.42 | ||||||||||||||
| (i)Represents monthly annualized losses. (ii)April 2023's subprime numbers have been restated because last month's tracker did not include a few very recent 2023 transactions. April 2023's previously reported losses were 5.52%. (iii)April 2023's subprime modified numbers have been restated. April 2023's previously reported losses were 5.15%. (iv)Three large deep subprime issuers-- American Credit Acceptance, Exeter, and DRIVE--are excluded. N/A--Not applicable. | ||||||||||||||||||||||||||
Chart 1
Prime Recoveries Continued To Normalize To Pre-Pandemic, And Subprime Recoveries Continues To Outpace Pre-Pandemic Levels
Recoveries strengthened month over month for both prime and subprime. Prime recoveries increased slightly to 68.32% in May 2023 from 65.87% in April 2023 and remain higher than the pre-pandemic level of 66.70% in May 2019. Two of the largest contributors to the month-over-month improvement in recoveries were CarMax and World Omni. While recovery rates retreated significantly from 113.74% in May 2021 and 82.06% in March 2022, those were unusual times, and we don't expect recoveries to return to those levels.
Similarly, subprime recoveries also inched up to 54.52% in May 2023 from 53.31% in April 2023, remaining higher than the pre-pandemic level of 49.01% in May 2019.
We expect recovery rates to normalize because more-recently financed vehicles are unlikely to appreciate as they did in 2021 and early 2022 due to stimulus-driven demand, urban consumers moving to the suburbs, and a shortage of vehicles stemming from semi-conductor shortages and other supply chain issues.
While recovery rates improved in May 2023, the Manheim Used Vehicle Value Index (see chart 2) reported its second straight monthly decline.
Table 2
| Recovery rate composite(i) | ||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| May-09 | May-14 | May-15 | May-16 | May-17 | May-18 | May-19 | May-20 | May-21 | May-22 | Apr-23 | May-23 | |||||||||||||||
| Prime (%) | 53.60 | 72.65 | 73.52 | 63.71 | 70.92 | 70.57 | 66.70 | 54.01 | 113.74 | 82.06 | 65.87 | 68.32 | ||||||||||||||
| Subprime (%) | 45.29 | 53.10 | 51.17 | 49.89 | 42.84 | 48.42 | 49.01 | 42.19 | 75.03 | 59.18 | 53.31 | 54.52 | ||||||||||||||
| Subprime modified (%)(ii) | N/A | 53.59 | 51.05 | 48.87 | 43.98 | 46.80 | 46.90 | 40.66 | 70.53 | 59.36 | 51.17 | 52.91 | ||||||||||||||
| (i)Represents monthly recovery rates. (ii)April 2023's subprime numbers have been restated because last month's tracker did not include a few very recent 2023 transactions. April 2023's previously reported recoveries were 55.13%. (iii)April 2023's subprime modified numbers have been restated. April 2023's previously reported recoveries were 52.98%. (iv)Three large deep subprime issuers -- American Credit Acceptance, Exeter, and DRIVE--are excluded. N/A--Not applicable. | ||||||||||||||||||||||||||
Chart 2
Delinquencies Continued To Climb, Reaching Their Highest May Levels In Years
The prime 60-plus-day delinquency rate rose to 0.48% in May 2023 from 0.46% in April 2023 and 0.38% in May 2022. In addition, delinquencies remained higher than their pre-pandemic level of 0.35% in May 2019 and were at their highest May level since 2011.
Similarly, the subprime 60-plus-day delinquency rate spiked to 5.22% in May 2023 from 4.77% in April 2023 and 4.54% in May 2019. This was the highest May delinquency rate for subprime since we started tracking this metric. We attribute these rising delinquencies to consumers facing financial stress from inflationary pressures, the fading benefit of COVID-19-related support, and growth in originations that came at the expense of credit quality, which may have been impaired by credit score inflation. In addition, in the subprime segment, the general increase in composition coming from deep subprime lenders has also contributed to record 60-plus-day delinquencies. For example, the collateral composition for DRIVE, Exeter, and ACA grew steadily from a combined percentage of only 13.00% of the subprime composite as of May 2015 to a peak of 40.00% as of May 2020 before declining to 33.00% as of May 2022 and 26.00% as of May 2023.
Table 3
| Sixty-plus-day delinquency rate composite(i) | ||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| May-09 | May-14 | May-15 | May-16 | May-17 | May-18 | May-19 | May-20 | May-21 | May-22 | Apr-23 | May-23 | |||||||||||||||
| Prime (%) | 0.67 | 0.35 | 0.37 | 0.39 | 0.42 | 0.37 | 0.35 | 0.34 | 0.23 | 0.38 | 0.46 | 0.48 | ||||||||||||||
| Subprime (%) | 4.18 | 3.48 | 3.89 | 4.10 | 4.50 | 4.29 | 4.54 | 3.72 | 2.74 | 4.61 | 4.77 | 5.22 | ||||||||||||||
| Subprime modified (%)(ii) | N/A | 3.16 | 3.35 | 3.22 | 3.24 | 3.07 | 3.21 | 2.91 | 1.75 | 3.08 | 3.80 | 4.24 | ||||||||||||||
| (i)Represents 60-plus-day delinquencies. (ii)April 2023's subprime numbers have been restated because last month's tracker did not include a few very recent 2023 transactions. April 2023's previously reported delinquencies were 4.84%. (iii)April 2023's subprime modified numbers have been restated. April 2023's previously reported delinquencies were 3.85%. (iv)Three large deep subprime issuers--American Credit Acceptance, Exeter, and DRIVE--are excluded. N/A--Not applicable. | ||||||||||||||||||||||||||
Chart 3
Auto Loan ABS Rating Activity/Revised Loss Expectations
In May 2023, we revised our loss expectations and took certain rating actions.
Table 4
| Surveillance actions | ||||||||
|---|---|---|---|---|---|---|---|---|
| Rating actions (by class) | Expected cumulative net losses (no. of transactions) | |||||||
| Issuer | Date | Transaction reviewed | Upgrades | Downgrades | Affirmations | Increased | Decreased | Maintained |
| Prime | ||||||||
| UNIFY Auto Receivables Trust | 6/14/2023 | 1 | 3 | 2 | 1 | |||
| BMW Vehicle Owner Trust | 6/23/2023 | 3 | 7 | 3 | ||||
| Harley-Davidson Motorcycle Trust | 6/29/2023 | 3 | 7 | 2 | 1 | |||
| Subprime | ||||||||
| Flagship Credit Auto Trust | 6/9/2023 | 3 | 11 | 5 | 2 | 1 | ||
| First Investors Auto Owner Trust | 6/14/2023 | 1 | 4 | 1 | 1 | |||
| Exeter Automobile Receivables Trust | 6/26/2023 | 1 | 1 | 1 | ||||
| Tidewater Auto Receivables Trust | 6/29/2023 | 2 | 1 | 2 | 1 | 1 | ||
| Total | 14 | 19 | 1 | 24 | 4 | 7 | 3 | |
June's analysis resulted in 19 upgrades, one downgrade, and 24 affirmations bringing the total number of U.S. auto loan ABS related upgrades, downgrades, and affirmations to 151, six, and 194. For the 14 transactions we reviewed in June, we increased our CNLs on four (all subprime), lowered them on seven, and maintained them on three.
Table 5
| Historical ratings activity--U.S. ABS auto loans | ||||||
|---|---|---|---|---|---|---|
| Period | Upgrades | Downgrades | ||||
| 2015 | 177 | 0 | ||||
| 2016 | 357 | 0 | ||||
| 2017 | 322 | 0 | ||||
| 2018 | 335 | 2 | ||||
| 2019 | 432 | 5 | ||||
| 2020 | 332 | 8 | ||||
| 2021 | 579 | 0 | ||||
| 2022(i) | 416 | 6 | ||||
| 2023(ii) | 151 | 6 | ||||
| Total | 3,101 | 27 | ||||
| (i)The downgrades were a result of error correction. Prior upgrades were too high due to a input error and, as such, the amount of upgrades were reduced with the error correction. (ii)As of June 30, 2023. | ||||||
Table 6
| Historical ratings activity--Canadian ABS auto loans | ||||||
|---|---|---|---|---|---|---|
| Period | Upgrades | Downgrades | ||||
| 2021 | 8 | 0 | ||||
| 2022 | 3 | 0 | ||||
| 2023(i) | 0 | 0 | ||||
| Total | 11 | 0 | ||||
| (i)As of June 30, 2023. | ||||||
Table 7
| Flagship Credit Auto Trust (%) | ||||||
|---|---|---|---|---|---|---|
| Series | Original lifetime CNL exp. | Revised lifetime CNL exp.(i) | ||||
| 2021-4 | 11.50 (11.25-11.75) | 11.50 | ||||
| 2022-1 | 11.50 (11.25-11.75) | 12.50 | ||||
| 2022-2 | 11.75 (11.50-12.00) | 13.50 | ||||
| (i)As of the May 2023 distribution date. CNL exp.--Cumulative net loss expectation. N/A--Not applicable. | ||||||
Table 8
| First Investors Auto Owner Trust (%) | ||||||
|---|---|---|---|---|---|---|
| Series | Initial lifetime CNL exp. | Revised lifetime CNL exp.(i) | ||||
| 2022-1 | 9.50(9.25-9.75) | 10.75 | ||||
| (i)As of the May 2023 distribution date. CNL exp.--Cumulative net loss expectations. | ||||||
Table 9
| BMW Vehicle Owner Trust (%) | ||||||||
|---|---|---|---|---|---|---|---|---|
| Series | Original lifetime CNL exp. | Former lifetime CNL exp. | Revised lifetime CNL exp. | |||||
| 2019-A | 0.55-0.65 | up to 0.20 | up to 0.10 | |||||
| 2020-A | 0.90-1.10 | 0.15-0.25 | up to 0.15 | |||||
| 2022-A | 0.55 | N/A | 0.30 | |||||
| CNL exp.--Cumulative net loss expectations. N/A–-Not applicable. | ||||||||
Table 10
| UNIFY Auto Receivables Trust (%) | ||||||||
|---|---|---|---|---|---|---|---|---|
| Series | Original lifetime CNL exp. | Former lifetime CNL exp. | Revised lifetime CNL exp. | |||||
| 2021-1 | 2.75-3.00 | 1.50-2.00 | 0.90 | |||||
| CNL exp.--Cumulative net loss expectations. | ||||||||
Table 11
| Tidewater Auto Receivables Trust (%) | ||||||||
|---|---|---|---|---|---|---|---|---|
| Series | Original lifetime CNL exp. | Prior lifetime CNL exp.(i) | Revised lifetime CNL exp.(ii) | |||||
| 2018-A | 12.50-13.50 | Up to 11.25 | Up to 11.25 | |||||
| 2020-A | 12.50-13.50 | 9.75-10.25 | 9.00 | |||||
| (i)As of the May 2022 distribution date. (ii)As of the June 2023 distribution date. CNL exp.--Cumulative net loss expectations. | ||||||||
Table 12
| Harley-Davidson Motorcycle Trust (%) | ||||||||
|---|---|---|---|---|---|---|---|---|
| Series | Initial lifetime CNL exp. | Former lifetime CNL exp.(i) | Revised lifetime CNL exp.(ii) | |||||
| 2020-A | 1.35-1.55 | 0.70-0.90 | Up to 0.60 | |||||
| 2021-A | 1.45-1.65 | 1.00-1.20 | 1.10 | |||||
| 2022-A | 1.35-1.55 | N/A | 1.45 | |||||
| (i)Revised in April 2022. (ii)Revised in June 2023. CNL exp.--Cumulative net loss expectation. N/A--Not applicable. | ||||||||
Table 13
| Exeter Automobile Receivables Trust (%) | ||||||
|---|---|---|---|---|---|---|
| Series | Original lifetime CNL exp. | Revised lifetime CNL exp.(i) | ||||
| 2022-5 | 18.75 | 22.50 | ||||
| (i)As of the collection period ended May 31, 2023. CNL exp.--Cumulative net loss expectations. | ||||||
Appendix I: 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 expected cumulative net losses (ECNLs) of 3.25% or less and average FICO scores of 700 or higher. We include CarMax and Carvana's P series in this segment.
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 annual percentage rates 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 few 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 Car Now Acceptance Corp.), Credit Acceptance Corp., and Drive Time 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. 18, 2022. However, note that we subsequently added transactions that have since closed.
Related Research
- Seniority Has Its Privileges: Some 2022 Subprime Auto ABS Senior Classes Upgraded Despite Weaker Collateral Performance, July 12, 2023
- One Rating Raised And Two Affirmed On Tidewater Auto Receivables Trust 2018-A And 2020-A, June 29, 2023
- Seven Ratings Affirmed On Three Harley-Davidson Motorcycle Trust Transactions, June 29, 2023
- Credit Conditions North America Q3 2023: Risks Vs. Resilience, June 27, 2023
- Exeter Automobile Receivables Trust 2022-5 Class E Rating Lowered And Removed From CreditWatch Negative, June 26, 2023
- Economic Outlook U.S. Q3 2023: A Sticky Slowdown Means Higher For Longer, June 26, 2023
- Seven Ratings Affirmed On Three BMW Vehicle Owner Trust Transactions, June 23, 2023
- Four First Investors Auto Owner Trust 2022-1 Ratings Raised And One Rating Affirmed, June 14, 2023
- Three Ratings Raised And Two Ratings Affirmed From UNIFY Auto Receivables Trust 2021-1, June 14, 2023
- Eleven Ratings Raised And Five Affirmed From Three Flagship Credit Auto Trust Transactions, June 9, 2023
- Scenario Analysis: The Potential Impact Of A Recession On Prime Auto Loan ABS Ratings, April 12, 2023
- How The Next Downturn Could Affect U.S. Subprime Auto Loan ABS Ratings, Dec. 8, 2022
This report does not constitute a rating action.
| Primary Credit Analyst: | Amy S Martin, New York + 1 (212) 438 2538; amy.martin@spglobal.com |
| Secondary Contacts: | Jennie P Lam, New York + 1 (212) 438 2524; jennie.lam@spglobal.com |
| Steve D Martinez, New York + 1 (212) 438 2881; steve.martinez@spglobal.com | |
| Sanjay Narine, CFA, Toronto + 1 (416) 507 2548; sanjay.narine@spglobal.com | |
| Research Contributor: | Manali Kithani, CRISIL Global Analytical Center, an S&P affiliate, Mumbai |
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