NEW YORK — Fitch Ratings discovered this week that both prime
and subprime U.S. auto ABS losses have risen in recent months. However,
analysts think the trend is likely a "speed bump" that's fleeting as the sectors
enter a seasonally strong period.

In the subprime segment, Fitch indicated 60-plus-day
delinquencies rose 3 percent month-over-month to 3.74 percent in January, while
annualized net losses improved by 4 percent month-over-month to 6.62 percent,
down from 6.92 percent in December.

Meanwhile, Fitch determined prime annualized net losses rose
5 percent in January recording the fifth consecutive increase. That said,
analysts pointed out prime losses are still at their lowest levels seen over
the past 10 years. Additionally, they noted losses are well below the strong
2005-2006 vintages (which ranged from 0.65 percent to 1 percent).

"Fitch expects prime auto asset ABS performance to normalize
through the year. However, it will remain historically low even as used-vehicle
values soften a little further and payroll taxes rise eating into consumers'
monthly incomes," analysts said.

Continuing with a look at prime paper, Fitch mentioned 60-plus-day
delinquencies jumped 10 percent in January to 0.43 percent from 0.39 percent in
December. But the latest level settled 16 percent lower year-over-year.

Fitch went on to note prime annualized net losses rose
month-over-month to 0.42 percent in January from 0.40 percent but were 21
percent improved year-over-year. Prime cumulative net losses remained at 0.29
percent in January, unchanged from December's level. Cumulative net losses were
44 percent improved year-over-year, remaining within record low levels according
to Fitch.

"Fitch's outlook for prime auto ABS asset performance is
stable, while the ratings performance outlook is positive," analysts said. "With
seven upgrades in January, Fitch expects more upgrades through the year. This
should help the number of positive rating actions outpace 2012's rate even as
losses are expected to increase."

Fitch recapped that the Manheim Used Vehicle Value Index
slid to 123.4 in January from 124.1 in December, a 0.6-percent decline
following the bump in values in December seen from replacing vehicles after
Hurricane Sandy.

"Used vehicle volume is expected to grow this year, as more
people trade in their old vehicles for new ones along with high lease turn-in
volumes, resulting in lower but still healthy wholesale vehicle values in 2013,"
analysts said.

As previously reported by SubPrime Auto Finance News, Fitch
also projected that U.S. auto asset sector credit metrics will modestly weaken
and normalize this year from the decade-low levels experienced a year ago.

Fitch also expects moderation in used-vehicle values and a
slight relaxation in underwriting terms on recent vintage loans. Overall credit
performance is expected to be relatively better than historical averages,
supporting auto lender ratings.

"Originations were strong in 2012, a trend which is expected
to continue into 2013," analysts said.

"Competition in subprime lending has increased with a number
of new entrants, some backed by private equity capital, entering the space due
to relatively easier access to funding (primarily ABS). To date, Fitch has seen
modest shifts in underwriting standards which are viewed more as normalizing
rather than overly aggressive lending tactics," they continued.

"Auto lenders demonstrated increased willingness to lend
through 2012, thanks to robust availability of cheap funding sources. Fitch
expects funding costs to remain stable in 2013," analysts went on to say.

Fitch reiterated that its auto ABS indices comprise of
$64.15 billion of outstanding notes issued from 118 transactions. Of this
amount, 72 percent comprise prime auto loan ABS and the remaining 28 percent
subprime ABS.

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