NEW YORK -- Despite stable ratings performance in 2008, the asset performance of prime U.S. auto-loan asset backed securities (ABS) will continue to face stiff headwinds in 2009, according to Fitch Ratings in its latest edition of 'In the Auto ABS Driver’s Seat'.

With Fitch's forecast of the unemployment rate heading north of 8 percent by year-end 2009, loss frequency on auto loans will follow. At the same time, recovery rates will continue to be pressured as used vehicle values remain under constant pressure.

"Delinquency and annualized net losses levels on auto loans will increase by more than 40% in 2009 from 2008's year end numbers," said Fitch managing director John Bella. "Fortunately, most transactions have been able to absorb these losses without a material deterioration in credit enhancement."

As a result, rating performance for the majority of prime auto ABS was stable during 2008. Upgrades outnumbered downgrades in prime auto ABS by an 8:1 margin.

"Declining asset performance will make certain transactions more vulnerable to downgrades throughout this year, with subordinate bonds likely to absorb most of the negative rating actions," said Senior Director Hylton Heard. "However, Fitch still believes that 'AAA' rated prime auto ABS ratings will remain stable in 2009."

In this month's newsletter, Fitch also details the recent assignment of Rating Outlooks to 310 tranches of prime and near-prime auto ABS issued from 73 owner trusts rated by Fitch. Auto ABS Rating Outlooks indicate the potential direction of a rating over a one-year period, and may be positive, negative or stable.