Deterioration in loss and delinquency rates produced by the largest U.S. auto lenders signals an inflection point in auto loan asset quality which will help dealers approve more applicants in the subprime segment.
Find out more about the lender banks included and the latest Fitch report.
Fitch Ratings contends modest year-over-year deterioration in loss and delinquency rates produced by the largest U.S. auto lenders signals an inflection point in auto loan asset quality.
Analysts said in their special quarterly report “U.S. Auto Asset Quality Review,” that they “expect asset quality trends to normalize later this year and into 2014 as underwriting standards continue to ease.”
Fitch explained the average U.S. vehicle loan/lease net loss rate for issuers covered in its report came in at 0.68 percent during the second quarter, down 26 basis points from the prior quarter. Analyst indicated the trend reflected “the seasonally favorable payment trends typically experienced in the second quarter of each year due to tax refunds.”
However, Fitch noticed average net loss rate and average 30-day delinquencies increased year-over-year, by 17 and 45 basis points, respectively. Analysts reiterated the trends are “signaling that credit performance has reached an inflection point with future loss rates expected to increase and revert to more normalized levels.”
To compile its analysis, Fitch reviewed the quarterly performances of:
- Ally Financial
- Toyota Motor Credit
- Ford Motor Credit
- JPMorgan Chase
- Wells Fargo
- Capital One
- GM Financial
“Lenders seem to be more willing to relax underwriting standards against a backdrop of positive economic factors such as lower unemployment, higher housing prices and higher consumer confidence,” Fitch analysts said.
According to the Federal Reserve, seasonally adjusted nonrevolving credit, which includes auto and student loans, increased to $1.98 trillion, up an annualized rate of 7.9 percent sequentially.
“The growth is consistent with the level of new vehicle sales. Moreover, healthy growth trends in nonrevolving credit should, to some extent, support prices of used vehicles,” Fitch said.