Fitch: U. S. Auto Finance Credit Performance Weakens; Loan Growth Moderates
"Fitch expects credit performance to continue to deteriorate going into 2017, particularly in the subprime segment as less tenured auto finance companies with looser underwriting standards have entered the market in recent years," said Michael Taiano, Director, Fitch Ratings.
Strong auto loan/lease portfolio growth for Fitch rated auto finance companies continued in 1H16 due to strong auto sales, low interest rates and continued consumer demand for leases and extended loan terms, although the growth rate decelerated slightly from last year. Fitch expects loan growth to continue to moderate, particularly should interest rates rise and used car values decline, which could impact lease pricing.
Despite the recent credit deterioration, Fitch rated auto lenders' ABS credit performance continues to be strong relative to historical norms as the average net loss rate increased a modest eight basis points to 0.73% in 2Q16 from 0.65% in 2Q15. Average 30+ day delinquencies actually decreased slightly to 3.16% from 3.25% during the same period. Losses among the largest auto lenders remained low, but continue to normalize due to an increase in both loss frequency and severity. The average net charge-off rate on the managed portfolios for lenders cited in the report increased to 0.53% from 0.43% year over year.
Huntington Bancshares Inc., JPMorgan Chase & Co., and American Honda Finance Corp. ended the first half of the year with the lowest credit loss rates largely due to the prime nature of their portfolios and consistent underwriting standards.
"Credit losses and delinquencies for the auto finance industry will likely trend higher as more recent vintages continue to season and recovery values decline from historic highs," added Taiano.