OREANDA-NEWS. Delinquencies and losses on prime auto loan ABS remained historically low through June, despite slow growth in the U. S. economy, according to Fitch Ratings. Most economic factors that affect ABS asset performance are stable, while healthy used vehicle values have supported performance metrics during the second quarter of 2016. However, used car values will decline and pressure asset performance over the next 12 months.

Prime 60+ days delinquencies were at 0.36% in June, up marginally from 0.30% recorded the prior month, and were 15% higher year over year (YOY). Despite the increases, delinquencies are low relative to the past 10 years of performance, and well below the peak levels in 2008-2010.

Prime annualized net losses (ANLs) rose by 18% month over month (MOM) to 0.47%, but were significantly below the historical index average of 0.91%. ANLs were 36% higher in June versus a year earlier. Over the past year, losses have risen from record low levels, and are still below the strong 2005-2006 period, when ANLs ranged from approximately 0.50% to 1.30%.

In the subprime sector, 60+ days delinquencies shifted higher MOM to 4.07%, and were 11% above the same period in 2015. The peak level recorded in 2016 was 5.16% in February, and delinquencies dipped as low as 3.64% in May.

Subprime ANLs fell in June to 6.32% over the prior month, but were 16% higher YOY. Fitch expects subprime ANLs to rise in the second half of the year, driven by weak collateral credit quality in 2013-2015 vintage securitized pools and pressure on wholesale vehicle values, which we expect to pressure recovery rates.

The used car market continued to be strong through July. Low interest rates, growing employment levels and low new vehicle supply levels continue to support demand and sales of used vehicles, which is buoying prices and supporting overall auto loan ABS asset performance.

Smaller used car segments have come under pressure and declined, while SUV and truck values have been strong, driven by low gas prices drawing consumers in to purchase these vehicles. However, increases in vehicle supply in the second half of 2016 and into 2017 will push down used car values and slow asset performance as the market normalizes further.

Fitch issued 25 upgrades on outstanding subordinate classes of prime and subprime notes through the first half of the year, compared with 37 during the same period in 2015. Fitch expects the current pace of upgrades in 2016 to continue during the second half of the year, given current expectations on asset performance.

Fitch's auto ABS indices track the performance of $95 billion of outstanding transactions through mid-2016. Prime auto ABS collateral makes up $57.22 billion, or 60% of this amount, while the remaining 40% is backed by subprime collateral.