Equifax Observations for the subprime auto loan market

With rising household debt, much higher gas prices and minimal growth
in their incomes, borrowers are increasingly strapped to finance autos,
new or used.
Moody's and Standard & Poor's see subprime quality weakening as
lenders reach farther down into the credit population to extend riskier
loans. The ability of subprime auto lenders to grow may already be
restricted by the impact of higher loan amounts, lengthy terms, and
higher interest rates and monthly payments.
An economic slowdown will generally result in growing inventories
of used vehicles. The resulting lower prices, in turn, reduce lenders'
collateral covering existing loans. As dealers attempt to obtain higher
margins on new vehicle sales, there is an added emphasis on selling
more aftermarket products. This results in the lender financing a greater
maximim advance on Line 5 of the installment contract.



Equifax believes the trends point to a difficult year ahead for the
subprime auto loan market. In particular, discussions with our
customers and economic analysts indicate that:
The market will experience increasing delinquency rates,
repossessions and deficiency balances.
Burdened by heavier costs associated with the management
of delinquent accounts, subprime lenders will have increasing
difficulty in hitting their forecasted revenue and growth targets.
Ultimately, the fallout from these adversities will negatively
impact asset-backed securities.
In our view, the subprime auto industry is entering a period of rising
losses and will face increasing headwinds as credit metrics worsen. The
combination of longer term loans and accelerating losses could have a
magnified impact on the industry's profitability in a deteriorating economic environmen