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Fitch: U.S. Auto ABS Losses Rise in 3Q; Softness to Continue

October 26, 2010

NEW YORK — The prolonged stressed state of the U.S. consumer and seasonal pressures pushed U.S. auto loan ABS losses and delinquencies higher in the most recent period, according to the latest Auto Loan ABS index results from Fitch Ratings.

“Weaker used vehicle values driven by seasonal factors contributed to the worsening auto ABS performance,” said Senior Director Hylton Heard. “However, used-vehicle values remain strong overall and declines were less than typically experienced during this time of the year.”

Despite these pressures, auto ABS performance looks to be stable through the end of the year. Prime auto loan ABS annualized net losses (ANL) rose three consecutive months to 0.90 percent through September, correlating with historical patterns in which used-vehicle values typically fall in September.

Prime ANL levels are expected to range from 1 percent to 1.30 percent and hold well below 2009 levels consistent with the continued strong performance of the 2009 and early 2010 collateral vintages.

Prime ANL rose 34 percent quarter-over-quarter through September, but were 46 percent improved over the same period in 2009. The ANL rate of 0.90 percent in September was within range of 0.85 percent-0.94 percent recorded during the same period in 2007.

Prime auto loan ABS delinquencies of 60+ days increased to 0.64 percent in September, up 12.3 percent from August, but notably down over September 2009 by 23.8 percent. Current delinquencies are relatively in line with the 10-year total average for the index of 0.57 percent despite high unemployment figures, low consumer confidence and rising personal bankruptcies.

Subprime 60+ day delinquencies increased in September to 3.89 percent. Though the figure is 25.1 percent higher than in August, it is 21.7 percent lower than a year earlier. Subprime ANL rose in September to 6.75 percent, up 22.5 percent month-over-month, representing a decline of 30.3 percent from the 2009 number. Due to the limited subprime auto ABS issuance in recent periods, monthly subprime index results are more subject to individual transaction volatility.

Fitch's outlook for prime and subprime auto loan ABS ratings performance is currently stable/positive for the remainder of 2010. Primary catalysts include positive asset performance from the 2009 and 2010 vintages and support of structural features present in transactions. Through the mid-October, rating upgrades in 2010 have outnumbered 2009 levels by almost 4:1.

Fitch's prime auto loan indices total approximately $39.7 billion issued from 73 transactions, while the subprime indices comprise the performance of 20 transactions totaling $5.9 billion.

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