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Fitch: U.S. Auto Lease ABS Ratings Facing Stiff Headwinds

July 30, 2008

New York -- The recent announcements by the financing arms of Chrysler, GM and Ford regarding the discontinuation or overhaul of their auto lease programs underscores the impact of rapidly declining vehicle resale values, according to Fitch Ratings.

Earlier this week Chrysler Financial, GMAC and Ford Motor Credit announced significant changes to their auto lease businesses with Chrysler Financial suspending their U.S. auto lease program all together. GMAC announced it will stop subsidizing leases in Canada and will eliminate certain lower credit quality borrowers from consideration domestically. Ford announced significant increases in lease rates for certain SUVs and trucks. All three companies indicated that their decision was influenced by the ongoing decay in the resale values of vehicles coming off lease.

Coincidental with these declines, Fitch is currently completing a review of its auto lease ratings with a focus on the 2007 and 2008 vintages. Fitch currently has 20 public ratings outstanding from 10 transactions representing approximately $7.2 billion in principal outstanding from 2007 and 2008 U.S. captive finance company issuances. The initial review is expected to be completed over the next two to three weeks.

"As Fitch has noted, dramatic drops in the value of used cars is impacting the entire auto ABS sector, but those declines are having an amplified affect on the performance of auto lease transactions," said Kevin Duignan, managing director and U.S. ABS group head. "Transactions from 2007 and 2008 may not have built enough credit enhancement to offset the potential increase in residual value losses while still maintaining coverage consistent with Fitch's original ratings."

U.S. captive finance companies, in particular, are experiencing higher than expected residual value losses due to the steep drop in the values of vehicles coming off lease especially for SUVs and trucks. Fitch's base case residual value loss expectation for these companies' auto lease ABS transactions has increased by 20 to 30 percent since the second half of 2007 as value declines accelerated.

However, current data suggests that actual declines are exceeding this range in certain transactions with further deterioration expected. "While ratings in the auto lease sector have traditionally been remarkably stable, the rapid rate of decline in vehicle values over the past six months is unprecedented and will put those ratings to the test," said Ravi Gupta, ABS senior director.

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