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DETROIT, April 6 (Reuters) - Ratings agency Fitch said on Thursday that it expects further credit deterioration in auto lenders' portfolios in 2017 as the U.S. auto market comes off a boom cycle in which smaller subprime lenders have been aggressively pursuing market share.
Fitch said it expects a U.S. new-vehicle sales to decline to 17 million this year after reaching a record 17.55 million in 2016.
Auto sales have been strong for six years, and there are concerns the industry may be headed for a downturn.
That record run has been accompanied by looser standards by lenders, rising loan-to-value ratios and extended loan terms, Fitch said.
"As asset performance slows, rising used-vehicle supply from both lease returns and increasing repossessions will drive depreciation higher," the Fitch report said, "putting downward pressure on recovery rates and accelerating loss severity and loss levels."
Fitch said the subprime segment "has underperformed the most" and that its subprime Annualized Net Loss (ANL) index hit 10.4 percent through February - the first time it has crossed the 10 percent threshold since the height of the Great Recession in 2009.
"There are signals indicating tightening auto lending standards by banks," the ratings agency said. "Fitch would view continued tightening by auto lenders as a prudent step given the potential for higher losses in the event of default."
In late March Moody's Investors Service said competition to finance car loans in a flat market would intensify and drive increased credit risk for auto lenders. (Reporting By Nick Carey; Editing by Steve Orlofsky)