Credit losses and delinquencies for U.S. auto loans and leases declined in the 1H 2014 with a normalization of auto credit trends closer to historical averages to persist in the 2H of this year, according to Fitch Ratings.
Fitch attributes the declines to the seasonality generally associated with consumer discretionary spending. The average net loss rate for lenders covered in Fitch's report was 0.60% in 2Q'14, down 63 bps from 4Q'13 but up 27 bps from 2Q'13. Lenders have been easing underwriting standards in the face of rising auto loan demand in a competitive environment.
Fitch notes that easing underwriting standards has led to both an easing of overall credit terms and an increase in subprime leading. This is evidenced by an increase in auto ABS issuance and lower FICO's scores across several lenders in Fitch's ratings portfolio. Credit quality has not yet been affected materially, although Fitch believes that easing underwriting standards combined with car value declines will lead to a normalization of auto credit trends in line with historical averages.
Increased nonprime lending, eased underwriting standards, continued moderation in used car values and increased regulatory scrutiny are several challenges that face auto lenders in coming periods. A rising interest rate environment would be a credit neutral for most auto loan lenders.
The full report 'U.S. Auto Asset Quality Review: 2Q14' is available at 'www.fitchratings.com.'
Additional information is available at 'www.fitchratings.com'.
Mohak Rao, +1-212-908-0559
Source: Fitch Ratings
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