What Kroll Bond Rating Agency (KBRA) has been discussing for much of the year continues to come to fruition.

Analysts said July remittance reports showed a second straight month of deteriorating credit performance and declining recovery rates across securitized prime and non-prime auto finance pools.

According to its latest update, annualized net losses in KBRA’s prime auto loan index rose 8 basis points month-over-month and 13 basis points year-over-year to 0.20%, while the percentage of prime contracts 60 days or more past due increased 2 basis points month-over-month and 9 basis points year-over-year to 0.34%.

Meanwhile, analysts also shared that annualized net losses in KBRA’s non-prime index increased 114 bps month-over-month and 271 basis points year-over-year to 5.05%, while non-prime 60-day delinquency rates rose 47 basis points month-over-month and 160 basis points year-over-year, coming in at 5.03%.

“The more rapid deterioration in our non-prime index, relative to our prime index, is likely the result of inflationary pressures having an outsized impact on lower credit-quality borrowers,” KBRA said in its latest update.

Analysts pointed out that wholesale vehicle prices are finally beginning to show some post-pandemic normalization since the Manheim Used Vehicle Value Index is down 10.5% year-to-date. As a result, recovery rates in both of KBRA’s indices softened in July.

Recovery rates in KBRA’s prime index declined 7.8 percentage points month-over-month and 17.0 percentage points year-over-year to 58.8%, while non-prime recoveries were down 6.2 percentage points versus the previous month and 10.9 percentage points versus the year-ago level, landing at 53.7%.

“This month’s weaker index readings were expected as seasonal tailwinds (i.e., tax refunds) dissipate, and as inflationary pressures and rising interest rates weigh on consumer balance sheets during the summer months,” analysts said.

“It seems likely that auto loan credit performance will continue to weaken in both indices through the remainder of the year as consumers struggle with rising prices and depleting savings,” KBRA added.