Vehicle Sales Change Could Slow US Auto ABS Performance

NEW YORK -- January 29, 2015: The shift away from smaller, more fuel-efficient vehicles could result in lower wholesale vehicle prices and marginally slow the asset performance of auto ABS transactions in 2015, Fitch Ratings says. Sales of trucks and SUVs reached the highest level in over three years through the end of 2014, while sales of cars have been declining since 2012.

Fitch expects used vehicle supply to rise in 2015 and place pressure on wholesale vehicle values. Additionally, low gas prices may raise consumer demand and purchases of larger vehicles. Auto manufacturers may increase small car incentives if inventories rise beyond optimal levels. If these trends continue in 2015, this may impact securitized auto ABS pools with high concentrations of cars, particularly pools with cars totaling over 50%.

Trucks and SUVs captured approximately 52% of the market in 2014, up from 48% through YE12. Conversely, sales of cars declined to 48%. The top selling vehicles in 2014 were trucks and SUVs, with the top three being the Ford F-Series, Chevrolet Silverado and Ram trucks. Most manufacturer small car sales fell last year versus the prior two years. Total vehicle sales hit 16.5 million units in 2014, the highest level in over six years. Fitch predicts that auto sales may hit 16.8 million units in 2015.

The state of the wholesale vehicle market is a key indicator of loss severity in auto ABS transactions. Fitch forecasts that returns of leased vehicles will rise over 10% in 2015 versus 2014, with a large number comprising cars, given sales of these smaller, cheaper vehicles in 2012-2013 will come off lease in 2015.

Combined with higher vehicle trade-in volumes expected in 2015, this trend may pressure used values throughout the year and drive losses marginally higher in auto loan ABS. It could also push up auto lease residual value losses in auto lease ABS transactions.

We expect U.S. prime auto loan annualized losses to rise to 0.50%-1.10% in 2015, based on current expectations of softer used vehicle values this year. Despite this, such a range is well within historical levels in prior years and in line with the strong 2005-2007 period.

Fitch's outlook for prime auto loan ABS asset performance is stable in 2015 and remains positive for ratings performance. The outlook for both is stable for the subprime sector. In the lease sector, asset and ratings performance are both expected to be stable in 2015, unchanged from 2014.