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Auto ABS Delinquencies Jump 10 Percent on Rising Unemployment, Says Fitch Ratings

October 01, 2009

NEW YORK — Sixty-plus-day delinquency levels on U.S. prime auto loan ABS rose more than 10 percent to 0.85 percent in August, as consumers continue to struggle with rising unemployment and reduced access to credit, according to Fitch Ratings.

"With loss frequency remaining the biggest driver of loss rates on auto ABS, Fitch expects losses to rise further in coming months," said Senior Director Hylton Heard. "That being said, rising losses should remain in check as the resilient wholesale vehicle market should help mitigate loss severity."

Prime auto ABS delinquencies of 60-plus days posted a 10.4 percent jump in August over July's level. The 0.85 percent rate recorded in August is just below the 10-year record high of 0.87 percent, recorded in first quarter earlier this year.

As result of rising frequency, default levels are increasing in tandem. Prime annualized net losses (ANL) rose 6.3 percent in August to 1.85 percent, vs. July. This was the third consecutive monthly increase for the index. In the historically weak fall months, Fitch expects ANL will approach the 2 percent level.

Loss severity is currently moderated by rising used-vehicle values, helping to slow the rate of increase in loss rates in 2009. Reduced supply in the used car market, among other factors, continues to support rising used-vehicle values this year. The Manheim Used Vehicle Value Index, which tracks the health of the wholesale vehicle market, posted its eighth consecutive monthly increase in August and values are up almost 20 percent from their December 2008 lows.

Despite declining asset performance, most senior level bonds continue to perform as expected. Fitch has upgraded 20 classes of notes through Sept. 30 of this year, compared to 27 through the same period in 2008.

Fitch's indexes track the performance of over 100 transactions totaling $52.5 billion worth of prime and subprime auto ABS. Prime loans compose 78 percent, and subprime loans the remaining 22 percent.

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