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Fitch Places Six Dealer Floorplan ABS Trusts on Rating Watch Negative

February 6, 2009

Chicago -- Fitch Ratings has placed all classes of notes from each of the GMAC, Ford and Chrysler related dealer floorplan asset-backed securities (ABS) on Rating Watch Negative.

The rating actions follow the announcement of dismal auto sales in January. Current sales levels could imply that a larger number of dealerships will face financial difficulties or bankruptcy in numbers greater than anticipated in Fitch’s analysis. Further, January’s report amplifies the concerns and uncertainties regarding the near-term prospects of the U.S. domestic auto manufacturers and their related captive finance companies and confirms their need for significant financial support prior to year-end. Finally, an analysis of trust performance reveals an ongoing decline in monthly payment rates and greater volatility in these rates than ever experienced previously. In particular, this unprecedented set of events creates a risk profile that may not be consistent with Fitch’s current dealer floorplan ABS ratings, particularly at the ‘AAA’ level.

January 2009 new vehicle sales continued to decline at an alarming rate, with General Motors, Ford, and Chrysler each reporting 40 percent or more declines in monthly domestic sales compared to the prior year. These figures suggest a potential annual new vehicle sales level of approximately 10 million vehicles or less in 2009. This is the lowest sales volume experienced by the industry in 27 years.

In addition, a high level of uncertainty remains on the availability, amount and timing of any incremental government bailout funding. A Feb. 17 deadline has been set by Congress for each manufacturer to submit a plan which outlines their strategy for achieving viability, however limited information is available as to the nature of these plans and whether they will receive any positive response from government. Without this support, it is conceivable that one or more of the manufacturers and/or finance companies, may be forced into bankruptcy at the same time.

The increased potential for such an outcome increases the likelihood that rapid and highly disorganized filings may occur, resulting in a large number of franchised dealers defaulting simultaneously and a large number of vehicles being sent to auction in an already severely depressed wholesale vehicle market with little consumer demand. Such a scenario could potentially negatively impact the key performance variables in each ABS transaction beyond Fitch’s previously assumed base and stress case scenarios.

 

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