U.S. auto loan asset-backed securities (ABS) performance for the prime and subprime segments improved in February 2024 on a month-over-month basis due to the tax refund season kicking in, with losses decreasing for both segments. Recoveries and delinquencies also saw a considerable improvement as compared to the previous month. However, losses and delinquencies remained high relative to year-ago and pre-pandemic February 2020 levels, and recoveries were also low on both accounts.

Losses Decreased Month Over Month For Both Prime And Subprime, But Were Higher Year Over Year

After five consecutive months of increases since September 2023, prime annualized losses decreased, to 0.68% in February. Although the losses deceased month over month from 0.77% in January 2024, they are still above the year-over-year loss of 0.42% in February 2023 and the pre-pandemic February 2020 level of 0.56%. The deterioration in prime losses is due to certain repeat issuers reporting elevated losses on their transactions and new entrants incurring higher-than-average prime losses. Repeat issuers reporting higher losses include Mercedes, VW, USAA, Ally, and CarMax, which in aggregate represent approximately 20% of the compositive as of February 2024. Mercedes' higher-than-expected losses on its 2022-1 and 2023-1 transactions resulted in our revising upwards our expected cumulative net losses (ECNLs) on these deals and raising our base-case ECNLs on their subsequent transactions. Ally's higher losses are largely attributable to its 2023-A transaction, which includes slighter weaker-quality loans than its prior transactions denoted by a series number, such as 2022-1 through 2023-1 (as opposed to a letter). Newer issuers (those that did not have transactions outstanding in our database as of February 2020) that are contributing to higher losses include Carvana, SFS, Westlake 2023-P1, and a number of credit unions. These newer issuers with higher-than-average losses, in aggregate, represent approximately 6% of our composite.

Similarly, subprime annualized net losses decreased month over month to 8.04% in February 2024 from 9.39% in January 2024 and increased year over year from 7.48%.

Losses for almost all the subprime issuers decreased month over month, with Exeter Automobile Receivables Trust, Santander Drive Auto Receivables Trust, Carvana Auto Receivables Trust, GLS Auto Receivables Trust, and Drive Auto Receivables Trust being the major contributors, accounting for approximately 54% of the subprime composite in February 2024.

After netting out the three large deep subprime issuers (Santander's DRIVE platform, Exeter, and American Credit Acceptance), modified subprime annualized losses decreased to 7.05% in February 2024 from 7.77% in January 2024, and increased year over year from 6.43%. The modified subprime composite reported higher average losses in February 2024 than February 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 Considerably While Still Remaining Low Year Over Year

Recoveries continued to improve month over month for both prime and subprime. Prime recoveries increased month over month to 52.11% in February 2024 from 49.57% in January 2024. However, recovery rates were still lower than the February 2023 level of 55.06% and February 2020 level of 58.16%

Subprime recoveries also improved to 39.83% in February 2024 from 35.93% in January 2024. However, they are still lower than the February 2023 level of 45.01% and the February 2020 level of 41.38%.

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 March 29, 2024, the average refund was $3,050, approximately 4.8% higher than last year through the same date.

Table 2

Chart 2

Delinquencies Dipped Marginally From Record Levels

The prime 60-plus-day delinquency rate decreased to 0.54% in February 2024 from 0.64% in January 2024. However, they are still above than the February 2023 level of 0.47% and the February 2020 level of 0.40%.

After reaching its highest-ever level in January 2024, the subprime 60-plus-day delinquencies have now seen the first month-over-month decline since September 2023.

The subprime 60-plus-day delinquency rate decreased to 5.49% in February 2024 from 6.31% in January 2024 and increased from 5.36% of February 2023. Also, delinquencies remained higher than February 2020 (4.98%) and are at their highest-ever February 60-plus-day delinquency level.

Tax refunds will help many consumers to bring their accounts current, and as such, after the tax refund season, we'll have better insight into the direction of losses for the subsequent few months. However, the decline in subprime losses below the February 2020 level was a step in the right direction, indicating that lenders' tighter credit standards are perhaps paying off.

Table 3

Chart 3

Auto Loan ABS Rating Activity/Revised Loss Expectations

In March 2024, we reviewed 14 transactions, and we revised our loss expectations downwards for seven, upwards for six, and maintained the same for one.

Table 4

Overall, March's analysis resulted in 26 upgrades, one downgrade, and 31 affirmations.

Year to date through March 31, U.S. auto loan ABS-related upgrades and downgrades total 31 and 5, respectively.

Table 5

Table 6

Table 7

Table 8

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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

• Five Ratings Raised And One Affirmed On Two Prestige Auto Receivables Trust Transactions, March 29, 2024
• Seven Ratings Raised And Five Ratings Affirmed On Three World Omni Select Auto Trust Transactions, March 28, 2024
• Three Ratings Raised And 15 Affirmed On Four Ford Credit Auto Owner Trust Transactions, March 15, 2024
• One Rating Lowered, Five Raised, And Six Affirmed On United Auto Credit Securitization Trust 2022-1, 2022-2, And 2023-1, March 3, 2024
• U.S. Auto Loan ABS Tracker: January 2024 Performance, March 7, 2024
• Various Rating Actions Taken On GLS Auto Receivables Issuer Trust Series 2022-2 And 2022-3, March 4, 2024
• 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