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Fitch: First-Half Auto ABS Perfomance Down, Rating Volatility to Increase

July 23, 2008

NEW YORK — Declining asset performance in U.S. prime auto-loan asset-backed securities (ABS) has done little to adversely affect ratings performance, though that may change during the second half of 2008, according to Fitch Ratings.

Asset performance in prime U.S. auto-loan asset-backed securities deteriorated on a year-over-year basis during the first half of 2008 as annualized net losses increased by 88 percent. However, ratings on prime auto loan transactions remained stable during the period as excess spread was sufficient to absorb elevated loss levels. Mounting economic pressures and declining used-car values are likely to contribute to an increase in negative rating actions in the second half of 2008.

Fitch's prime ANL index hit 1.24 percent in June, 9 percent higher than in May. ANL rates in 2008 have come off the record low levels exhibited in the two years prior to 2008 and, so far, are consistent with loss rates produced in 2002-2005.

Fitch's 60+ days delinquency index rose to 0.62 percent in June, an 8.8 percent increase over May. Year-over-year, the index was 29 percent higher in June vs. a year-ago. Delinquency levels are following seasonal patterns, but through June were well above levels produced during similar periods over the past six years.

In the subprime sector, 60+ days delinquencies rose 7 percent in June over May to 3.28 percent. The index was 34 percent higher in June when compared to June 2007. Subprime ANL rose 3 percent in June to 5.63 percent, versus May, and were 44 percent above the level produced in June 2007. June's ANL rate remained above levels exhibited during the 2005-2007; however, losses still remain within range or below performance seen during 2002-2004.

While negative rating actions have been limited in the first half of 2008, positive rating actions have slowed as asset performance declined. Fitch upgraded only 14 tranches of prime auto ABS transactions in the first six months of 2008, vs. 61 during the same period in 2007.

Despite this fact, most prime transactions continue to build credit enhancement providing adequate loss coverage for the most senior tranches of bonds. Subordinate tranches, particularly of those transactions issued in late 2006 and all of 2007 with high SUV and truck concentrations, remain at elevated risk.

The outlook on asset performance remains negative for the remainder of 2008. Factors that will impact auto ABS performance in the latter part of the year include a softening U.S. economy, declining consumer demographics, loan structural features including the increased origination of longer term loans and higher loan-to-values that drive loss severity, and a deteriorating wholesale vehicle market with severe declines in the truck and SUV segments in recent months.

Fitch's indexes track the performance of $62.3 billion of auto ABS, of which 66 percent comprises prime auto ABS and the remaining 34 percent subprime auto ABS.

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