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February U.S. Auto ABS Performance In Line with Expectations, Reports Fitch

March 6, 2008

U.S. auto-loan ABS performance exhibited slight improvement last month in line with normal seasonal patterns, according to Fitch Ratings. Prime and subprime 60-plus days or more delinquencies exhibited improvements in February compared to January, while annualized net losses (ANL) rose further but at a slower pace compared to previous months.

“Despite weaker overall performance beginning in the second half of last year and into 2008, auto ABS ratings have remained stable to positive because the loss rates have remained within Fitch’s original expectations,” said Hylton Heard, a director in Fitch’s ABS group. “Though Fitch expects the pace of auto ABS upgrades to slow, Fitch also does not anticipate a significant increase in downgrades.”

In the prime sector, Fitch’s prime 60-plus days delinquency index posted the first monthly improvement since October 2007, dropping 2.6 percent to 0.75 percent in February vs. January. Delinquencies remain 25 percent higher through February compared to the same period in 2007. Prime annualized net losses (ANL) were 1.33 percent in February, rising nearly 4 percent over January. Despite the slowdown in the index in February, ANL were 34 percent higher vs. 2007 levels.

Subprime 60-plus days delinquencies dropped to 3.74 percent in February vs. January, a 7 percent decline. February’s delinquency rate was 40 percent higher than in the same period in 2007. ANL were at 8.54 percent in February, virtually unchanged vs. January’s level. The ANL rate in February was 30 percent higher vs. February 2007.

Fitch’s indexes total approximately $67 billion of prime and subprime auto ABS transactions, of which 64 percent, or $43 billion, comprises of prime auto-loan transactions while the remaining $24 billion represents subprime transactions.

Ratings of subprime auto ABS transactions have been affected by Fitch’s downgrades of certain financial guarantors who provide insurance policies on these transactions. This has resulted in Fitch downgrading 14 subprime auto-loan and six rental-car transactions in the past six months.

While incoming tax refunds and rebates may mute delinquency and loss rates in the short term, macroeconomic conditions impacting consumers combined with a softer used-vehicle market will continue to pressure loss frequency and severity, and ultimately net loss rates.

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