NEW YORK — High unemployment rates throughout 2010 will continue to apply pressure on gross losses on auto loan transactions, according to DBRS.

Basically, DBRS drew a connection between unemployment and credit performance, saying this relationship has continued during the "economic recession."

"Unemployment rates for December 2009 remained steady at 10 percent and are expected to remain high throughout 2010," officials indicated. "This is due in part to the fact that there are an additional 5.9 million people as of December 2009 who currently want a job but are not included in the labor force.

"This includes people who have given up looking for work and are no longer receiving any unemployment benefits. As the economy improves, these people are expected to rejoin the labor force and start looking for work again which will maintain upward pressure on unemployment rates," they continued.

"However, we expect that the performance of 2010 vintages will be in line with that of the 2009 vintages as issuers maintain their tighter underwriting standards," the company noted.

In fact, officials said that many auto asset-backed securities originators, particularly independent finance companies, have cut back on originations over the last several years to help manage liquidity as access to the capital markets became limited.

"In the subprime sector, several lenders have exited the market in 2008 and early 2009," executives highlighted. "Those remaining have reduced origination volumes and tightened credit underwriting standards.

"Despite the continued pressure on gross losses, recoveries are expected to be more stable in 2010," they pointed out. "The used-car market is expected to be less volatile as auto manufacturers have aligned vehicle production more closely with demand. However, concerns over individual manufacturers or brands may result in increased volatility to the values on those vehicles."

Overall, the company expects credit enhancement levels to continue at higher levels "as the data used to develop loss expectations reflects the higher loss levels experienced in the 2006 through early 2008 vintages."

Moreover, officials said, "In addition, uncertainty with respect to the timing and strength of the economic recovery, unemployment levels and individual auto manufacturers continues to exist. DBRS will continue to monitor the trends in employment statistics and report on the impact of those trends on auto loan performance.

Looking back over 2009, the company indicated that the auto ABS sector has performed relatively well, compared to other ABS asset classes. This is despite the increase in employment, bankruptcies of General Motors and Chrysler and the volatility in the used-car market, officials noted.

"Late 2008 and 2009 vintages in particular are performing better than 2006 through early 2008 vintages," executives highlighted. "This is primarily due to the tightening of underwriting standards and credit by originators during 2008 and 2009 in response to performance trends and the overall economic environment.

"It is also due in part to higher credit enhancement levels in deals as loss expectations reflected weaker performance in the 2006 through early 2008 vintages," they added.