Subprime Auto Performance Improves in May; Reveals Increasingly Uneven Market

The latest dv01 Auto Performance report finds the subprime auto market outperformed seasonal trends across most metrics for only the second time in six months. However, performance continues to diverge across GWAC and LTV ranges.

What the Data Shows

• Performance is increasingly bifurcated by GWAC: Impairments on loans below 11% GWAC are at their lowest level on record, while loans above 23% GWAC continue to deteriorate.
• LTV remains the strongest performance differentiator: Differences across mid-range LTV bands are now substantially wider than historical levels, particularly across charge-offs, impairment net changes, and prepayments.
• Newer loan ages offer an encouraging signal: Performance among 9-26 month loans has continued to improve, which provides some optimism that newer originations may eventually improve aggregate performance.
• Loss severity pressure is returning: Severities rose 100 bps in May, erasing April’s improvement and making a breach of 60% this year more likely.

What We’re Watching

• Is May’s outperformance a sign the sector is turning a corner or merely a blip as the sector enters its traditional second half deterioration?
• When will originators adjust pricing across LTV ranges to compensate for recent performance differences?
• How much will the recent improvement in impairments among loan ages 9 to 26 months impact ultimate performance?