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Pressures on U.S. Auto ABS Performance Mount, Reports Fitch

June 17, 2008

NEW YORK -- The asset performance of U.S. auto loan asset-backed securities (ABS) continues to be highly pressured by weak economic and consumer fundamentals and a softer wholesale vehicle market, according to Fitch Ratings. Prime and subprime annualized net losses (ANL) were both mildly better in May versus April declining to 1.14 percent and 5.47 percent, respectively. However, loss rates remain materially higher than those recorded in 2007.

The slight decline in ANL during May primarily reflected seasonal patterns. On a year over year basis, prime ANL in May were 78 percent above loss rates recorded a year earlier and well above levels produced in 2006 and 2005. Subprime ANL in May stood at 40 percent above 2007 loss rates. While ANL in May were still below loss levels recorded in 2002 to 2004, 60+ day prime delinquencies increased from April indicating that losses will likely continue their climb higher in June.

Frequency of default is being driven by the slowing economy including a weaker job market, rising household costs such as higher food prices and record high energy prices, and sinking home values which has led to declines in the average net worth of U.S. consumers.

Loss severity is expected to remain elevated due to overall declining wholesale vehicle values, especially in the sport utility vehicles/light truck segment. A rapid drop in demand for gas-guzzling SUVs and trucks has led to a 24 percent and 21 percent year-over-year decline in values for the large SUVs and large pickups through May, respectively, according to Manheim Consulting.

The Manheim Used Vehicle Value Index has fallen 6.3 percent (seasonally adjusted) in 2008 through May, versus the same period in 2007. Furthermore, longer term loans (more than 60 months) and higher loan-to-values (LTV) are contributing to higher levels of loss severity.

While the ratings of prime auto ABS have exhibited stability in the past two months, Fitch has observed a number of prime transactions that are experiencing cumulative net loss rates which are above Fitch’s original transaction base case forecasts. As Fitch anticipated, the rate of transaction upgrades slowed in 2008 compared with 2007. Should losses continue to trend higher the ratings of certain subordinate bonds may come under pressure. However, senior ratings are expected to continue to show stability as enhancement continues to grow in most cases. Through May 2008, 13 tranches of auto ABS transactions were upgraded, versus 61 tranche upgrades issued during the same period in 2007.

Fitch’s prime 60+ days auto ABS delinquency index rose 5.6 percent in May over April to 0.57 percent. On a year-over-year basis, delinquency rates in May were 21.3 percent above May 2007 levels, a slight improvement compared to the prior few months. Prime annualized net loss (ANL) rates dropped 17.4 percent versus April to 1.14 percent, reflecting seasonal improvement.

In the subprime sector, 60+ days delinquencies rose 11 percent to 3.06 percent in May versus April, and were 40 percent above levels seen in 2007. Subprime ANL in May dropped 23 percent versus April but were 36 percent above May 2007’s loss rate. As with the prime sector, subprime ANL in May were still significantly above levels recorded in the past three years. However, loss levels produced through May 2008 remain well below losses exhibited in 2002-2004.

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