Seeing delinquencies and credit losses going up while used car sales and lending standards deteriorate, rating agency Fitch warned today that “U.S. auto lenders will likely report further weakening in asset quality metrics this year.” Translated into English, lenders will become increasingly dependent on sub-prime loans and exposed to their perils.
Fitch saw average credit losses go up 16 basis points in the first quarter, delinquencies rose 67 basis points. Double-digit increases in auto leasing volumes may boost auto sales, but Fitch views this “with caution, particularly since used car values will likely return to more typical levels after recent rises.” Translated into English: Their residual value assumptions are based on fantasy, and there will be a rude awakening.
According to Fitch, “the expected weakening in asset quality for auto lenders is occurring after a period of record-low losses and delinquencies, and we believe the weakening of metrics will remain within historical norms, supporting ratings.” In plain English: Fitch won’t change the credit ratings of auto lenders just yet, but if this trend continues, they have been warned.