Fitch: Rising Loss Severity Driving Loss Levels in U.S. Auto ABS.

NEW YORK -- Loss severity in U.S. auto asset-backed securities (ABS) has risen in recent months following seasonal weakness and, as a result, annualized net losses have risen for three consecutive months within the prime sector, as stated in Fitch's 'In the Auto ABS Driver's Seat' newsletter released today.

Fitch's prime annualized net loss (ANL) index rose 13.4% in September to 0.76%, compared to August's level of 0.67%. However, on an annual basis, ANL remain almost 17% lower over the same period in 2005, but the year-over-year improvement has been slowing during 2006. In the subprime sector, ANL have risen four consecutive months mirroring performance patterns in the prime sector. ANL were 4.83% in September, up from 3.27% in May which was a record low for the index.

September and October are historically the weakest months of the year for wholesale vehicle values as the new vehicle model year changeover is in full swing, according to Director Hylton Heard. 'Manufacturers and dealers are focused on clearing current year new vehicle inventory through the use of higher incentives, to make way for new 2007 models' said Heard. As a result, demand and sales for used vehicles has been down in recent months. This, combined with higher incentives, all negatively impact used vehicle values and drive up loss severity in auto ABS.

Even with several production cuts in recent months, new vehicle inventories rose in September, the third consecutive monthly increase. In response, manufacturers increase incentives by 8% in September over August's level, in order to clear dealer lots.

Prime delinquencies on auto ABS rose 1.9% in September to 0.55%, unchanged from a year ago. Subprime delinquencies declined 6% in September to 2.71%, down 12.6% on a year-over-year basis. This drop follows on from four consecutive months of increases in the subprime index which hit a yearly low of 1.66% back in April.

Auto ABS issuance (auto loan, lease, rental, dealer floorplan, truck, and motorcycle loans) hit $68.9 billion through September. This is materially down from 2005's level by nearly 23%. Prime auto loan issuance comprised nearly 50% of issuance in 2006, up 4% from 2005, followed by subprime auto loans with 26% market share, unchanged from a year ago. Issuance of other asset classes within the auto ABS market remain materially lower in 2006 versus 2005, namely auto lease and rental issuance down 40%, followed by dealer floorplan ABS which is off by 31%.

The latest edition of Fitch's 'In the Auto ABS Driver's Seat' is available on the Fitch Ratings web site at www.fitchratings.com.

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