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
Fitch's rating definitions and the terms of use of such ratings are
available on the agency's public site, www.fitchratings.com.
Published ratings, criteria and methodologies are available from this
site, at all times. Fitch's code of conduct, confidentiality, conflicts
of interest, affiliate firewall, compliance and other relevant policies
and procedures are also available from the 'Code of Conduct' section of
this site.
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