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U.S. Auto Lease ABS Issuance to Decline in 2008, Reports Fitch

March 17, 2008

With increasing declines in U.S. domestic new-vehicle sales and static industry-wide vehicle lease penetration rates, the overall volume of new retail vehicle lease originations, along with issuance of auto lease ABS, is expected to decline in 2008, according to Fitch Ratings in an updated criteria report.

Additional reasons for the overall expected decline include increasing pressure on residual realization levels, continued financial stress of domestic auto manufacturers and overall ABS market volatility.

Unlike an auto loan where the vehicle is owned by the borrower, the lessor is the owner of the vehicle under a typical lease transaction, so difficulties may exist in isolating the leases and vehicles from the assets of the lessor. Auto lease ABS are also subject to residual value risk and, as a result, are exposed to the volatility of used-vehicle prices and the wholesale auto market.

As such, lease ABS structures tend to be more complex when compared to those of auto loans and are generally structured to address the above mentioned risks. These issues and Fitch’s overall rating methodology for auto-lease ABS are discussed in detail in the published criteria piece.

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