NEW YORK and DALLAS — As the Federal Reserve discovered total
consumer borrowing — including auto loans — accelerated by 8 percent in August,
Fitch Ratings cautioned that industry enthusiasm should be tempered as
meaningful near-term risk remains as long as the U.S. fiscal cliff remains
unresolved.

Fitch highlighted that improving consumer confidence,
pent-up demand and widespread availability of financing have all helped drive
U.S. auto sales beyond expectations earlier in the year.

"Should the combination of tax hikes and spending cuts come
into force at year end, we believe it could lead to an unraveling of some of
the factors that have clearly helped buoy the industry over the past couple of
years," Fitch analysts conceded.

Fitch recapped that auto sales in September showed a nearly
13 percent year-over-year improvement.

And the Federal Reserve's data showed that in August,
consumer credit increased at a seasonally adjusted annual rate of 8 percent.
Revolving credit increased at an annual rate of 6 percent, and nonrevolving
credit increased at an annual rate of 9 percent.

All together, the Fed tabulated that total consumer
borrowing jumped by $18.1 billion in August from July.

Comerica Bank chief economist Robert Dye cheered the
borrowing movement but also approached with caution like Fitch's analysts.

"Strong September auto sales, ongoing gains to home sales,
lines at the Apple Stores for the iPhone5 all confirm a credit-fueled increase in consumer
spending in the third quarter that looks like it will extend into the
current fourth quarter. Improving credit availability in the presence of pent-up demand can work
wonders for deleveraged households with improving confidence," Dye explained in
his most recently weekly economic commentary.

"This healthy and appropriate re-leveraging has its limits
however," Dye emphasized. "Fundamental improvement to household quality of life
is driven by real disposable income growth, which comes largely through job and
wage gains. As of August, real disposable income for the U.S. was 1.8 percent above
its year ago level."

Dye believes there are three things that potentially threaten
that gain: accelerating inflation, large tax increases and weak labor markets.

"Inflation looks sedate barring an oil market flare-up emanating from the
Middle East. Tax increases in 2013, however, are already on the books unless
Congress dials down the fiscal cliff. Labor market data is showing some
improvement, but those gains remain vulnerable to the fiscal cliff," Dye stated.

And it's that fiscal cliff that has raised the attention of
Fitch analysts most.

"Regarding the fiscal cliff, in our opinion, it is likely
that all or some of the tax increases and spending cuts will be resolved or at
least temporarily deferred," Fitch predicted. "With that said, the possibility
of a non-resolution to the U.S. fiscal cliff could precipitate some detrimental
knock-on effects for the auto industry that could potentially put the brakes on
continued growth.

In its most recent Global Economic Outlook, Fitch projected that
an unresolved fiscal cliff would push the U.S. economy into another recession
and lead to a 3-percent cumulative loss of output by 2014.

"Tax increases would cause an immediate hit to a majority of
American incomes, forcing consumers to practice spending restraint that would
only be magnified when considering big-ticket items like cars and trucks,"
Fitch warned. "In addition, a tapering off in consumer confidence and an
increase in unemployment would likely lead to further demand concerns for auto
manufacturers, who would likely increase incentives in an attempt to prop up
demand.

"We note that, although the pricing environment has held up
well over the past several years, it could also change quickly should
government spending cuts and rising taxes take effect," analysts went on to
say. "Combined with the ongoing weakness in Europe and the slowing of demand in
most developing markets, an unresolved fiscal cliff could severely hit U.S.
auto manufacturers and parts suppliers just as they appear to be hitting their
stride."