NEW YORK — Fitch Ratings explored the potential ramifications
on used-vehicle values and the impact on recoveries as the auto leasing origination
market soars, reportedly spiking by as much as 248 percent in May alone.

Fitch contends that continued competition from new-vehicle
sales and increasing wholesale market supply will maintain recent pressure on
used-vehicle values and have some impact on recoveries for defaulted contracts
and auto lease residual realizations.

"We believe this trend is a return to more reasonable values
from exceptionally strong ones and expect auto lease ABS to continue outperform
expectations in the near term," Fitch analysts said.

The firm indicated used-vehicle values and residual
realizations for off-lease vehicles slid a bit early this year.

"We expect this to continue as years of constricted used
vehicle supply is slowly subsiding and new-car sales and off-lease returns are
rising,"

According to Manheim Consulting, its used vehicle value index
stood at 119.1 in May, the lowest level since February 2010 when it was 118.1.

"However, May's reading was higher than any May in prior to
2011," analysts said.

Fitch also pointed out its auto lease ABS residual
realization index has largely mirrored the direction of the Manheim index.

The index again registered residual gains of 5.75 percent at
the end of the first quarter. That lagged the 13.07 percent of the prior year
and is down from the all-time high of 29.21 percent seen in March of 2011.

"The softening in residuals observed coincides with peaking
volume of securitized leased vehicle returns measured by Fitch's index,"
analysts said. "In our view the negative correlation between off-lease supply
and residual realizations is an important consideration in light of the rapid
growth in leasing in recent years."

"More price softening has been observed in the compact and
midsize car segments due to substantial competition provided by product and
financing options in the new-vehicle market," Fitch went on to say.

"Meanwhile, values for larger vehicles, particularly
pickups, have been somewhat more stable due to somewhat constrained wholesale
market supply," analysts added.

More Evidence of Rising Lease Market

This week, CU Xpress Lease reported a 125-percent climb in
nationwide leasing numbers it has been tracking since the start of the
year.  In May alone, the company said this
figure produced a 248-percent rise since the same period in 2012. 

CU Xpress Lease, one of the nation's largest originators of
credit union leases and a GrooveCar affiliate company, indicated that more and
more credit union members are looking to lease rather than buy since the mean FICO
score on a new vehicle lease is at 755.

Recent polls by CreditForecast.com and Experian Automotive
underscored that total US auto lease balances were up an average 9 percent in
March or twice the increase over the same period in the prior year.

Experian's numbers showed that new vehicle leasing during
the first quarter alone of this year broke all records since the firm started
to track the data in 2006.

Among the credit union leaders in auto leasing volume last
month alone were Teachers FCU, Nassau Educators FCU, and Bethpage Federal FCU,
the major Long Island-based credit unions.

Overall, Long Island credit unions closed more than $30 million
in May lease loans, a 372-percent surge from the previous year, which CU Xpress
Lease has been tracking. 

CU Xpress Lease's portfolio currently exceeds $1.4 billion.

CU Xpress Lease senior vice president Frank Rinaudo contends
that leasing is the perfect product for this economic environment.

"Consumers and CU members are actively taking advantage of
the low out-of-pocket and monthly cost to lease a car, especially when you
consider the high labor rate in fixing or repairing," Rinaudo said.

"People are leasing all levels of vehicles from budget,
compact, midsized to luxury and this is giving rise to a changing consumer
mind-set about leasing.  Nowadays, we
find that once you lease, you will always lease," he added.

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