S&P Global Ratings is projecting the auto securitization market to grow this year after setting a record in 2023.

Analysts explained this week that pent-up demand for vehicles drove new-car sales 13% higher year-over-year to 15.5 million units in 2023, catapulting U.S. auto ABS issuance volume up by approximately 33% to a record $120 billion.

S&P Global Ratings said the previous record was $103 billion in 2005.

Analysts projected U.S. auto ABS issuance is expected to grow to $125 billion in 2024 “due to banks’ and credit unions’ increased appetite for securitization.”

That forecast arrived after S&P Global Ratings pointed out that portfolios currently connected with securitizations aren’t necessarily doing so well.

“Collateral performance deteriorated in 2023 with the prime and subprime segments reporting record high delinquencies and historically low recoveries, though vintage loss performance diverged,” analysts said.

“For the 2022 vintage, most prime issuers continued to report losses that were in line with historical levels (albeit higher than for the 2020-2021 pools, which benefited from COVID-19-related stimulus), while most subprime issuers recorded losses that exceeded 2016’s levels,” analysts continued.

Although credit metrics worsened, S&P Global Ratings said its actions remained largely positive with 396 upgrades and six downgrades, which all came in subprime.

“There would have been more downgrades and greater severity had certain issuers not supported their transactions with more credit enhancement,” analysts said.

Bottom line: what does S&P Global Ratings suspect might unfold during the rest of the year?

“We expect losses to continue rising this year based on recent metrics and growing consumer debt levels,” analysts said.

“Nonetheless, we also expect prime auto loan ABS ratings to be generally stable to positive, though the subprime segment is more exposed to downgrades given its greater deterioration and increased concentration of speculative-grade classes,” they said.