NEW YORK (S&P Global Ratings) Feb. 15, 2023–S&P Global Ratings published today the U.S. auto loan asset-backed securities (ABS) sector’s performance for the full-year and December 2022 (see “U.S. Auto Loan ABS Tracker: Full-Year And December 2022 Performance“).
Highlights from the report include:
•Lower retail auto sales and higher funding costs led to a 7.5% decline in auto loan ABS issuance to $91 billion in 2022. Due to pent-up new vehicle demand and new issuers, we expect 7% growth this year.
• After two years of exceptionally strong credit performance, driven largely by COVID-19-related government assistance and record recovery rates, 2022 was a turning point. Delinquencies rose (with subprime posting record levels by year-end), recoveries declined from peak levels, and losses escalated, with the subprime 2022 vintages reporting higher-than-historical rates.
•While credit performance started to normalize in the prime segment and deteriorated in subprime, rating actions remained largely positive with 419 upgrades and six downgrades.
•2023 will be a challenging year for auto loan ABS performance. Consumer-facing headwinds include potential recession, inflation, decreased savings, and increased debt levels. Higher interest rates and affordability issues are also likely to dampen used vehicle demand and could lead to lower recovery rates.
•Although we expect higher losses this year, we believe the robust structure of these transactions will lead to stable ratings on investment-grade (IG) classes, but the non-IG classes will be more vulnerable to a downgrade. We currently have nine subprime non-IG classes issued in 2022 on CreditWatch negative.
This report does not constitute a rating action.
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