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New Year Brings Continued Performance Pressure for Auto ABS

December 29, 2009

NEW YORK — Annualized net losses (ANL) on U.S. auto ABS rose again in November in a trend likely to continue into 2010, according to Fitch Ratings.

Elevated loss frequency will also pressure U.S. auto loan ABS performance in the coming year. Another likely driver will be unemployment, which Fitch projects will hit a peak of 10.5 percent by mid-2010.

"Rising unemployment coupled with low consumer credit and wage growth levels will prolong the pressure on auto ABS loss frequency," said Senior Director Hylton Heard. As a result, Fitch expects increases in net loss rates (although below the high of 2.23 percent witnessed in January of this year). This is due to the expectation of greater stability in vehicle values in 2010.

Risk on the loss severity side remains muted due to reduced supply in the used-car market, among other factors. The Manheim Used Vehicle Value Index, which tracks the health of the wholesale vehicle market, was unchanged in November despite seasonal weakness due to new models being introduced during this period. Vehicle values remain nearly 20 percent higher than their December 2008 lows.

According to Fitch's auto indices, ANL levels increased by 2.4 percent to 1.61 percent in November 2009 on U.S. prime auto loan ABS while 60+ day delinquencies declined by 10.7 percent from October's level to 0.67 percent. Fitch attributes the improvement in delinquency performance, which is unusual during this seasonally weak period, to additions to the index. In November approximately $4 billion of new, less seasoned securitizations with low delinquency levels were added to the index reducing the effect of more seasoned transactions with higher delinquencies.

Rating performance has remained stable despite the declining asset performance in 2009. Fitch has upgraded 32 classes of notes through Nov. 30 of this year, compared to 36 through the same period in 2008. Fitch's rating outlook for the auto loan asset class is stable for 2010.

Fitch's indexes track the performance of over 100 transactions totaling $52.6 billion worth of prime and subprime auto ABS. Prime loans compose 81 percent, and subprime loans the remaining 19 percent.


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