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Auto Loan ABS Performance Follows Seasonal Downshift

August 31, 2010

NEW YORK — The performance of U.S. auto loan ABS is starting to exhibit seasonal negative trends, according to the auto loan ABS indices results from Fitch Ratings.

While delinquencies and losses reached their lowest level in three years in June, summer's seasonal pressures finally manifested in July as delinquencies and losses both rose. Fitch expects auto loan ABS delinquencies and losses to continue climbing through the third quarter, according to Director Ben Tano.

"Seasonal pressures, the poor state of the job market and overall U.S. economy will pressure auto loan ABS performance in the coming months," said Tano. "The dismal housing market and personal bankruptcies are also hurting the economy, with filings up 13 percent through July from the same period last year."

Despite the recent weakness, numerous positive factors continue to support overall auto loan ABS collateral performance in an otherwise difficult economy, which have contributed to positive rating actions taken last month. These factors include: tighter underwriting in more recent vintages; and strong recovery rates on defaulted and repossessed vehicles despite recent slides in wholesale prices.

Annualized net losses (ANL) weakened for the first time in six months in the prime portfolio, with month-to-month losses up 19.4 percent to 0.80 percent in July. Despite the jump in losses, the current ANL level is down 54 percent, well below that of a year ago and 50 percent below year-end 2009.

The increase in prime ANL follows three consecutive months of rising delinquency performance. Prime 60-plus day delinquencies rose 7.7 percent in July over the prior month to 0.56 percent, following a 2 percent increase from May to June. The rate was 27 percent below the same period in 2009.

Subprime 60-plus day delinquencies increased for the third consecutive month to 3.30 percent, 7.5 percent higher than in June, but 22.5 percent lower from the year-ago period. On a month-over-month basis, subprime ANL increased 32.3 percent in July to 5.16 percent. However, that’s 26.9 percent below what was reported in the year-ago quarter, marketing the ninth consecutive month of annual declines.

Fitch's outlook for prime and subprime auto loan ABS ratings performance remains stable in 2010, due to improvements in underwriting in the 2009 and 2010 vintages and support of structural features present in transactions.

Fitch's prime auto loan indices total approximately $44.2 billion issued from 75 transactions. Fitch's subprime index comprises performance of 23 transactions totaling $7.3 billion.

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