U.S. auto loan asset-backed securities (ABS) annualized losses increased across the board for prime and subprime transactions. Losses increased month over month and continued to exceed year-over-year and July 2019 pre-pandemic levels. The weakness was tied to recoveries, which declined to abnormally low levels for July. Sixty-plus-day delinquency levels also climbed to elevated levels--the highest July level for prime since 2009 and highest ever July level for subprime.

Losses Increased Across The Board

Prime and subprime losses both increased in July and remained above the July 2023 and July 2019 levels.

Prime

Prime annualized net losses grew month over month to 0.75% and were higher than the July 2023 and July 2019 pre-pandemic levels of 0.56% and 0.55%, respectively. Prime losses jumped about 34.00% during the 12 months ended July 2024.

Of the approximately 20 issuers that had seasoned transactions outstanding for at least four months as of July 2024 and July 2023, 16 reported higher losses. The top three contributors to the higher year-over-year losses were Mercedes-Benz Financial Services USA (which represents 4.53% of our prime composite), General Motors Financial (10.87%; though its losses remain below the industry average), and Stellantis Financial Services (1.68%).

Credit unions also added to the increase in prime net losses. Credit union auto loan ABS issuances increased to 1.60% of our prime composite as of July 2024 from 0.80% as of July 2023. As a group, their weighted average annualized net loss was 1.45% in July 2024 compared with 0.93% a year earlier, but the year-over-year increase was due to lumpiness in PenFed 2022-A's recovery levels. Its recovery rate was less than 20% in July 2024, down from over 100% in July 2023. Excluding PenFed, credit union prime losses declined year over year to 1.47% from 2.15%.

Subprime

Subprime losses increased for the second consecutive month to 8.82% in July from 7.95% a month earlier. In addition, like prime, subprime losses were higher than the July 2023 and July 2019 pre-pandemic levels of 8.32% and 8.21%, respectively. Subprime losses rose 6.00% during the 12 months ended July 2024.

Of the 16 subprime issuers in our subprime composite that had transactions outstanding as of July 2024 and July 2023, all but three reported higher losses. The top three contributors to the higher year-over-year losses were Santander's SDART platform (which represents 28.50% of our subprime composite), GLS (7.50%), and Prestige (only approximately 2.00%; but the 60% year-over-year increase in its annualized loss rate had an outsized impact on the subprime composite's weighted average loss rate).

Table 1

Chart 1

Recoveries Slid To Unusually Low Levels For July

Prime recoveries declined to 54.62% in July 2024 from 56.06% a month earlier, 61.94% in July 2023, and 58.50% in July 2019. July recoveries haven't been this low since 2009.

Subprime recoveries saw a similar trend: declining to 34.97% in July from 36.52% a month earlier, 39.93% in July 2023, and 42.28% in July 2019. This is the lowest July subprime recovery level since our subprime composite started in January 2006. The paltry recovery rate of approximately 35% in July is more in line with the low levels we see annually from November to January.

Table 2

Chart 2

Delinquencies Increased To Unusually High Levels

Prime and subprime delinquencies increased in July, with both remaining above the July 2023 and July 2019 levels.

Prime

Prime 60-plus-day delinquencies rose to 0.62%--the highest July prime delinquency rate since 2009--from 0.59% a month earlier and was above the July 2023 (0.52%) and July 2019 (0.41%) levels. Given that late payments tend to rise toward year end, we expect delinquency levels to continue increasing through the second half of the year.

Of the 20 prime issuers in both S&P Global Ratings' July 2024 and July 2023 prime composites, 19 reported year-over-year increases in average late payments. Carvana and CarMax contributed significantly to the increase.

Subprime

The subprime 60-plus-day delinquency rate reached a record July high of 5.98%, up from 5.82% a month earlier, 5.88% in July 2023, and 5.30% in July 2019.

Of the 16 subprime issuers in our subprime composite in both May 2024 and May 2023, 11 reported year-over-year increases in average late payments. Given Santander's high weighting in the composite, the increase in its late payments contributed significantly to the overall increase in subprime delinquencies.

Table 3

Chart 3

Auto Loan ABS Rating Activity/Revised Loss Expectations

In August, we reviewed our loss expectations on 29 transactions: 12 were revised upward, 11 downward, and six maintained. Of the 12 transactions with upward revised ECNLs, five still have an ECNL that is below our original ECNL.

Table 4

Our reviews in August resulted in 41 upgrades and 77 affirmations. Year-to-date through Aug. 31, there were 173 upgrades and eight downgrades on U.S. auto loan ABS.

Table 7

Table 8

Table 9

Table 10

Table 11

Table 12

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 cumulative net losses (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 America's Car-Mart, 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.

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