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Difficult Times Ahead for U.S. Dealer Floorplan ABS in Second Half of 2008

August 7, 2008

NEW YORK & CHICAGO -- The weakened U.S. economy, highly competitive U.S. vehicle sales market, and corporate challenges facing U.S. automobile manufacturers will lead to worsening asset performance of U.S. auto-related dealer floorplan asset-backed securities during the second half of 2008, according to Fitch Ratings.

Dealer floorplan ABS, including those supported by auto-related receivables, has performed within expectations through the second quarter of 2008 in spite of the increased concerns, resulting in rating affirmations on all outstanding dealer floorplan ABS transactions, as per Fitch's recently completed comprehensive portfolio review.

However, senior director Ravi Gupta says that the expected continued financial weakness of U.S. auto manufacturers and dealers may begin to manifest itself in a declining asset performance outlook of auto-related dealer floorplan ABS. Particular stress may be experienced in monthly payment rates (MPR) for these transactions as an already weak new vehicle sales environment may be further impacted by the expected curtailments in retail vehicle lease financing programs offered by captive finance companies of the major auto manufacturers.

"Rating volatility in the auto-related dealer floorplan sector also has the potential to increase in the second half of this year," said Gupta. "In contrast, diversified floorplan, or non-auto related, receivables are expected to continue to demonstrate rating stability despite weakness related to the softening U.S. economy."

Fitch's new research report provides an overview and further details on the U.S. floorplan ABS sector resulting from the annual portfolio review and provides commentary on the lifetime performance of 18 outstanding transactions rated by Fitch totaling approximately $23.9 billion. Additionally, the report provides an overview of dealer floorplan mechanics, describes key performance variables, and summarizes performance trends through May 2008.

Fitch conducts is dealer floorplan ABS review annually in addition to ongoing monthly transaction surveillance. This review included transactions supported by auto-related as well as diversified (non-auto related) floorplan receivables currently rated by Fitch and is detailed in the new research report, "U.S. Dealer Floorplan ABS - Checking up on Dealers."

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