U.S. auto loan asset-backed securities (ABS) performance for the prime and subprime segments continued to weaken in January 2024 with losses increasing for both prime and subprime. Although we saw some month-to-month improvement in recoveries, delinquencies still stood high as compared to previous years.

Losses Rose Month Over Month And Year Over Year For Both Prime And Subprime

Prime annualized new losses reached their highest January levels since 2017, increasing to 0.77% in January 2024 from 0.72% in December 2023 and 0.49% in January 2023. The losses were above the January 2020 level of 0.65%.

Similarly, subprime annualized net losses increased month over month to 9.39% in January 2024 from 8.98% in December 2023 and year on year from 9.10%. Losses for most of the subprime issuers increased month over month. Similar to prime, subprime losses remained above January 2020's pre-pandemic level of 9.06%.

After netting out the three large deep subprime issuers (Santander's DRIVE platform, Exeter, and American Credit Acceptance), modified subprime annualized losses increased marginally to 7.77% in January 2024 from 7.70% in December 2023, and year on year from 7.35%. The modified subprime composite reported higher average losses in January 2024 than January 2020. This demonstrates that the deterioration in subprime performance isn't confined to only the deep subprime issuers; other subprime lenders are also struggling with higher-than-pre-pandemic loss levels, particularly in their 2022 securitizations.

Table 1

Chart 1

Recoveries Improved For The First Time Since May 2023

Recoveries improved month on month for the first time since May 2023 for both prime and subprime. Prime recoveries increased month over month to 49.57% in January 2024 from 46.61% in December 2023. However, recovery rates were still lower than the January 2023 level of 57.59% and January 2020 level of 56.06%.

Subprime recoveries marginally improved to 35.93% in January 2024 from 35.32% in December 2023. However, they are still lower than the January 2023 level of 36.97% and the January 2020 level of 39.11%.

We expect a seasonal uptick in recoveries due to tax refunds driving up used vehicle demand and prices. While the IRS started to process 2023 tax returns about a week later than last year, as of Feb. 23, 2024, the average refund was $3,213, approximately 4.3% higher than last year through the same date.

Table 2

Chart 2

Delinquencies Continue To Remain At Record Levels

The prime 60-plus-day delinquency rate did not change from the previous month and stands at 0.64%. The rate remained high as compared to 0.54% in January 2023 and 0.47% in January 2020. Additionally, it is the highest January level since 2010.

The subprime 60-plus-day delinquency rate rose slightly, to 6.31% in January 2024 from 6.27% in December 2023 and 6.00% of January 2023. Also, delinquencies remained higher than for January 2020 (5.48%) and were at their highest-ever 60+ day delinquency level.

We attribute rising delinquencies to several factors, including growth in vehicle prices and insurance premiums outstripping overall inflation rates and wage growth. This phenomenon, coupled with higher interest rates, have made vehicle payments much less affordable. As a result, when consumers fall a month or two behind in their payments, they can't bring their accounts current, which would necessitate making multiple payments within the same month. They can, however, often resume making their normal payment and thus they end up "churning" in delinquency status. Tax refunds, which started to be processed on Jan. 29, should help many consumers to bring their accounts current; as such, after tax refund season, we'll have better insight into the direction of losses for the subsequent few months.

Table 3

Chart 3

Auto Loan ABS Rating Activity/Revised Loss Expectations

In February 2024, we reviewed seven transactions (six Flagship transactions and OCCU 2022-1).

With respect to Flagship, all of the transactions reviewed had at least one class that was on CreditWatch negative. Of the 11 classes that were on CreditWatch negative, we downgraded four, affirmed six, and extended the CreditWatch negative on 2022-4's class E notes rated 'BB- (sf)'. During this review, we increased our loss expectations on five of the six transactions.

For OCCU 2022-1, we extended the CreditWatch negative on classes B and C rated 'A (sf)' and 'BBB (sf)', respectively.

Given the seasonality of fourth-quarter performance and our belief that the OCCU 2022-1 and Flagship 2022-4 transactions are in their peak loss periods, we extended their CreditWatch negative placements. We believe the extensions will afford more insight on the sustainability of recent performance trends and expected future collateral performance, which will inform our revised expected cumulative net losses (CNLs).

Table 4

Overall, February's analysis resulted in six upgrades (on the Flagship transactions), four downgrades, three CreditWatch negative extensions, and 16 affirmations.

Year to date through Feb. 29, U.S. auto loan ABS-related upgrades and downgrades total six and four, respectively.

Table 5

Table 6

Table 7

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 ECNLs of 3.25% or less and average FICO scores of 700 or higher. We include CarMax and Carvana 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 (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. 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 detailing the weighting of issuers in our prime and subprime composites and indices, see "U.S. Auto Loan ABS Tracker: June 2023 Performance," published Aug. 15, 2023, and "U.S. Auto Loan ABS Tracker: Full-year And December 2023 Performance," published Feb. 13, 2024.

Related Research

• Credit Unions Make A Splash In 2023, Almost Tripling 2022's Auto Loan ABS Issuance, Feb. 9, 2024
• Various Rating Actions Taken On Six Flagship Credit Auto Trust Transactions, Feb. 6, 2024
• OCCU Auto Receivables Trust 2022-1 Class C And D Ratings To Remain On CreditWatch Negative, Feb. 10, 2024
• U.S. Auto Loan ABS Tracker: Full-year And December 2023 Performance, Feb. 13, 2024
• U.S. Auto Loan ABS Tracker: June 2023 Performance, Aug. 15, 2023
• Seniority Has Its Privileges: Some 2022 Subprime Auto ABS Senior Classes Upgraded Despite Weaker Collateral Performance, July 12, 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