NEW YORK — Now that the U.S. doesn't appear to be going over
the fiscal cliff because of measures taken by federal lawmakers this week, the
projections made by Fitch Ratings about this year's auto ABS asset and ratings
performance appear to be on surer footing.

Analysts made their upbeat 2013 auto ABS forecast because of "healthy"
wholesale vehicle values and the "better-than expected" performance of the
2009—2011 loan vintages as losses are below initial expectations to date.

Fitch explained auto ABS performance will be supported by
the strong collateral characteristics of the 2009—2012 vintages and healthy
used vehicle values, although values should be flat to slightly weaker in 2013
given the increased supply expected to hit wholesale vehicle auctions this
year.

Fitch expects prime auto loan ABS losses in 2013 to be in
the range of 0.50 percent to 1.20 percent, similar to 2005—2007 levels. Similarly,
the firm thinks subprime auto loan ABS losses this year to be between 6 percent
and 7 percent, a level nearly half of the peak seen in 2009.

The outlook for asset performance is stable, and positive
for ratings performance, consistent with 2012.

Fitch projects the number of upgrades to pick up in this
year, given the higher number of subordinate bond tranches that will be coming
up for review next year and strong asset performance to date.

Analysts went on to mention loss frequency remains a focus
in 2013, specifically the health of the U.S. economy and state of households,
including potential volatility stemming from geopolitical events both locally
and abroad, such as the dragging European financial crisis and potential for
going over the U.S. fiscal cliff in early 2013.

While lawmakers approved a measure that addresses taxes and
spending in the immediate short term, Fitch analysts said, "A fiscal cliff
event will be a key focus for Fitch starting the year, particularly the
potential impact on GDP, job creation and growth and credit markets, which
would all impact auto ABS asset performance and could push the U.S. economy
back into recession.

"Should this event occur, Fitch expects asset performance to
deteriorate, but not be as impactful as the 2008—2009 credit crisis," they continued.
"Furthermore, current performance has been strong and transactions have been
performing well, with loss rates below initial expectations and structural
features building enhancement levels and adequate loss coverage. Fitch does not
expect such an event to impact outstanding ratings, but it would slow the
number of positive rating actions as a result.

Similar to 2012, Fitch is keeping an eye on job growth and
new-hire levels, and consumer savings and income levels.

"New jobless claims remain closely correlated to loss rates,
with the direct impact of the unemployment rate on asset performance more muted
as the rate has been historically high in the 7.5 percent to -8.5 percent
range, while loss rates have been at historical lows," analysts said.

"Although underwriting and credit quality standards have
exhibited small signs of loosening in 2012 as auto sales rose and the credit
market expanded, lenders appear to be disciplined, keeping credit and loan term
standards consistent," they continued. "This will be an area Fitch continues to
watch closely in 2013, particularly if new-vehicle sales rise past the 15
million unit mark and lenders chase market share and growth.

"Specifically, the subprime auto sector could be overheated,
particularly considering all the new entrants into this market over the past
two years and the potential for consolidation among lenders as they fend off
competition and look to expand credit appetites," Fitch went on to say.

Fitch wrapped up its ABS discussion by again touching on wholesale
vehicle values that are expected to be healthy in 2013, although flat to
marginally weaker due to slightly higher supply levels next year from off-lease
units coming to market.

"Despite this, loss severity should not impact loss rates
materially since recovery rates, which are strong going into 2013, are
supported by healthy demand for new and used vehicles, used vehicle
affordability and availability of credit," analysts said.

Fitch also expects manufacturers to continue to match
production with ongoing sales levels in 2013, as has been the case in 2012,
keeping inventories low and avoiding utilizing high incentives to push sales. Analysts
believe this trend will continue to support used-vehicle values in 2013,
benefiting both auto loan and lease ABS asset performance.

"Structural features present in auto ABS transactions,
including rapid amortization and initial and target enhancement levels, will
ensure adequate loss coverage and multiple levels in 2013, resulting in solid
ratings performance," analysts said.

"The outlook for ratings performance is positive for 2013, and
Fitch expects the pace of upgrades in 2013 to surpass that of 2012 given
current economic and sector conditions, as well as the higher number of
subordinate bonds coming up for review next year that are experiencing solid
asset performance to date, with loss levels currently below initial
expectations for the majority of transactions rated by Fitch," they concluded.


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