NEW YORK — Fitch Ratings' newest U.S. auto ABS index
indicated subprime loans are showing more weakness of late while performance
for U.S. prime auto ABS is still on solid footing.

Analysts said auto loan ABS produced the strongest
performance on record last year. Fitch noted annualized net losses on prime
auto loan ABS are still "resoundingly" low (0.40 percent as of December), in
what Fitch senior director Hylton Heard said was further testament to resiliency.

"As the wholesale vehicle market begins to normalize, losses
will trend marginally higher, though not enough to deter the stable performance
of prime auto loan ABS," Heard continued.

But while Fitch surmised that prime loans remain largely
immune to the tepid U.S. economy, the firm contended subprime loans are showing
more vulnerability to it.

Analysts tallied that annualized net losses on subprime auto
loan ABS increased in each of the last seven months of last year. December's
loss rate of 6.92 percent, though higher year-over, was still well below losses
seen in 2008—2009.

"Economic pressures, not surprisingly, are having a more
severe impact on subprime auto loans so the next 12 months will bear closer
watch," Heard said.

Looking deeper into Fitch's data, the firm pointed out that
delinquencies stayed relatively stable during the fourth quarter. Fitch found
that 60-day delinquencies stood at 3.64 percent in December, 3 percent higher month-over-month
and 14-percent above the same month in 2011.

"Fitch's outlook for subprime asset performance in 2013 is
stable, although the agency expects loss rates to rise as credit quality normalizes,
compared with the collateral characteristics of the strong 2010 and 2011 pools
securitized," analysts said.

Fitch also mentioned that strong 2009—2011 vintages are driving
overall performance.

"Currently tracking between 7.0 percent and 10 percent,
these vintages continue to benefit from robust credit quality and loan terms,
along with strong used vehicle values supporting low loss severity and
historically low sector losses," analysts explained.

However, Fitch acknowledged 2012 vintage loss projections
are higher.

"Although 2012 transactions have little seasoning to date,
current cumulative net losses are above 2009—2011 rates, projecting at 12
percent to date," Fitch analysts said this week. "The 2012 loss rates have
increased due to performance leveling off from record lows recorded in 2010–2012,
and marginally looser credit standards in 2012 pools."

Reflecting what the latest recession did to the market,
Fitch determined that 20070-2008 vintages are the weakest to date. The firm
said the 2007 vintage had loss performance of 12.5 percent to 13 percent to
date with the 2008 vintage settling near 14.7 percent.

"This compares to 2009 posting actual losses of just under 9
percent to date through three years, and 6 percent for the 2010 vintage through
two years," analysts said while adding, "2011 is the strongest to date through
16 months at 2.27 percent, a record low going back to 2002."

As the market ventures into just the second month of the
year, Fitch cautioned that the 2013 vintage loss might rise.

"If 2013 securitizations include weaker collateral quality
than recent prior year transactions, Fitch expects performance to be weaker
than the 2012 vintage," analysts said. "Factors indicating weaker credit
quality pools include extended loan terms, higher used-vehicle concentrations,
and elevated loan-to-values in 2013 pools securitized."

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