NEW YORK — Many auto companies curtailed leasing in 2008 as residual values caused a lot of concerns.

As DBRS pointed out in its latest report, residual values are a critical component of auto asset-backed securities' rating criteria.

"One of the significant concerns for investors and ratings agencies was the ability of vehicles' expected residual values to hold up over the duration of the transactions," Chris O'Connell, of DBRS.

Basically, with many collateral pools consisting of large trucks and SUVs, the high gas prices made these much less desirable for dealers when they went off-lease or were repossessed. Thus, many companies rethought their leasing practices last year.

"However, in September and October, gas prices fell precipitously, and simultaneously, product cuts of trucks and SUVs began to have their effect on dealer inventories," O'Connell noted. "These factors, combined with the weak U.S. economy driving many consumers to the used-vehicle market in lieu of purchasing new vehicles, results in used auction prices for trucks and SUVs rebounding beginning in November 2008.

"Since mid-November, gas prices have stabilized at relatively low levels, production levels have stayed low and the economy has continued to struggle, leading to an increase in used-auction prices approaching a level reflective of the pre-summer run up in gas prices," he continued.

The recovery in auction prices, including those for trucks and SUVs, is a good development for asset-backed securities, O'Connell explained.

"DBRS believes that although the recovery of this market may not yet signal a long-term trend, the recovery supports the idea that because of the cyclical nature of the auto market, the ratings approach to auto ABS must look ‘through the cycle' and not be over-reactive to short-term market fluctuations," he concluded.