DBRS Downgrades DaimlerChrysler Financial Services Americas LLC to B (high), Trend Negative

DBRS has today downgraded DaimlerChrysler Financial Americas LLC (Chrysler Financial or the Company) to B (high) from BB (high). The trend is Negative. Concurrently, all ratings have been removed from Under Review with Negative Implications where they were placed on July 30, 2008.

The rating action reflects DBRS’s concerns regarding the escalating pressures on the Company’s operations resulting from the industry-wide decline in automotive sales, the weakened U.S. economic environment, the significantly weakened used vehicle market, the increased cost of funds and the Company’s reliance on a deteriorating sister company, Chrysler, LLC. (DBRS also downgraded Chrysler, LLC to CCC (high) today; see separate press release).

DBRS expects that the deteriorating U.S. economic environment will lead to rising loss frequency at a time when loss severity is expected to remain high. The significant shift toward smaller, more fuel-efficient vehicles has weakened the demand for larger cars, sport utility vehicles (SUVs) and trucks, thereby quickly reducing wholesale pricing. Given the preponderance of larger vehicles in the Company’s book, DBRS expects continued high losses in the loan portfolio as well as significant weakness in residual values in the lease book. While the Company has taken additional incremental impairments of its lease portfolio and added to reserves for loan losses, the sizable exposure and the less-than-optimal portfolio mix leave it open to additional impairments, especially if consumer sentiment toward larger vehicles remains unchanged.

Moreover, this action reflects DBRS’s concerns that reduced automotive sales may drive lower originations. Additionally, DBRS is concerned that the Company’s recently announced exit from the leasing business may further pressure origination volumes as Chrysler Financial may not be successful in converting its lease volume to sales volume. Further, the reduced sales volumes at Chrysler, LLC may have a negative impact on the dealer base, potentially increasing credit costs in the wholesale portfolio. Although this portfolio has traditionally been well managed, any increases in losses from the Company’s historically low levels will have a negative impact on credit costs. The continuing softness in demand for certain Chrysler products further exacerbates loss potential.

Finally, the rating action considers the impact of higher funding costs and the potential for funding pressures caused by the stressed and uneven capital markets. DBRS recognizes that Chrysler Financial has been successful in renewing the majority of its conduits and views the capacity of the renewed facilities as sufficient given the expected reduction in overall origination volume and the exit from leasing. However, DBRS notes that the increased costs of the facilities will pressure operating margins and further affect earnings generation ability. Accordingly, DBRS views Chrysler Financial’s earnings generation ability as weakened. This weakness is occurring at a time when solid revenue and income will be required to offset the impact of the deteriorating economic environment and depressed used vehicle prices.

The Negative trend reflects the DBRS view that Chrysler Financial’s business fundamentals will remain stressed for the foreseeable future. Ongoing stress on U.S. household budgets as a result of increasing food and energy costs, a deteriorating U.S. employment outlook and continued home price deflation does not bode well for a swift recovery in auto sales. Furthermore, the previously listed factors will likely increase loss frequency and continue to result in elevated loss severity levels, thus increasing credit costs and pressuring earnings. A reduction in liquidity or an inability to return to historical profitability levels will further pressure the ratings. Furthermore, additional stress to the balance sheet may have an impact on the recovery of the secured facilities, thereby altering the notching between the issuer and secured ratings.