U.S. Auto Loan ABS Performance to Step Off the Gas but Keep Humming Along

Looking back on the past 18 months, counter to initial concerns, U.S. retail auto loan asset-backed securities (ABS) have generally performed well throughout the Coronavirus Disease (COVID-19) pandemic. While delinquencies and loan extensions initially spiked in April and early May 2020, performance has since stabilized, with delinquencies dropping to below pre-pandemic levels and many lenders reporting higher-than-expected collections. As federal assistance programs begin to expire, we expect retail auto loan ABS performance to return to normal levels. Nevertheless, DBRS Morningstar expects stable ratings on retail auto loan ABS deals because of a few different contributing factors.
• Surprisingly solid auto loan performance, with borrowers placing a priority on meeting payments
• Stress transactions in our rating analysis to confirm that credit enhancement levels could withstand greater losses
• Sequential pay structure and deleveraging