Fitch: Wholesale Vehicle Market Accelerating Loss Rates in U.S. Auto ABS

NEW YORK — The expected health of the wholesale vehicle market is a good indicator of future loss severity levels and loss rates in U.S. auto asset-backed securities (ABS), according to Fitch Ratings in a new report.

Currently, the wholesale vehicle market is exhibiting weakness due to several factors including a weak economy and soft job market. Loss severity in auto ABS is also under pressure due to lower used vehicle values and loan structure trends including longer loan terms and higher loan-to-values.

A recent Fitch analysis confirms that there is an indirect, inverse relationship between wholesale vehicle values and annualized net loss (ANL) rates in auto ABS. As wholesale vehicle values increase, auto ABS net loss rates decline, and vice-versa. In short, the healthier the wholesale vehicle markets, the lower loss severity in auto ABS as vehicle recovery rates increase, and thus loss levels ultimately decrease.

Despite these recent market developments, prime auto ABS rating performance has remained stable through the first quarter of 2008, even in light of weakening asset performance. In the subprime sector, outside of rating actions relating to the health of insurance guarantors' insurer financial strength, rating performance has remained relatively stable in 2008 despite declining asset performance.

Fitch will continue to closely monitoring these ongoing trends and their affect on the performance on auto ABS. 'U.S. Auto ABS Loss Rates & Wholesale Vehicle Values - Traveling in 'Inverse' Lanes' is available on the Fitch Ratings web site at www.fitchratings.com under the following headers:

Structured Finance then ABS then Special Reports

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