The most recent bankruptcy within the U.S. auto industry is expected to put more pressure on areas of the country that are already facing growing unemployment, according to a Friedman Billings Ramsey report released last week. Furthermore, the dampening labor prospects in more than 70% of those areas are already inflicted by higher-than-normal default rates on residential mortgages.

Toledo, Ohio-based auto supply company Dana Corp. earlier this month filed for Chapter 11 bankruptcy protection. The filing came after fellow auto parts suppliers - Delphi Corp., Collins & Aikman Corp., Meridian Automotive Systems and Tower Automotive - filed last year. As the companies move through bankruptcy and the Big Three automakers look to trim costs, FBR analysts are anticipating further pressure on homeowners.

"The faltering automotive industry has already severely affected most of these [metropolitan statistical areas], and, with this recent bankruptcy filing, we expect to see continued downward pressure on employment," FBR analysts wrote.

Within the U.S., Dana employs some 19,000 workers in 50 plants concentrated primarily in Indiana, Kentucky, Michigan and Ohio. Household unemployment in the areas rose 0.69% year-over-year as of December, while payroll employment expanded by 0.99%. Nationally, household unemployment fell during 2005 by 9.8%, while payroll employment grew by 1.39%. Twenty-five out of the 35 MSAs represented in the states are included in FBR's list of regions experiencing persistently high default rates compared to the rest of the nation.

Meanwhile, Alabama borrowers are showing promise - despite Hurricane Katrina damage - because a favorable tax environment and cheap labor have prompted foreign auto manufacturers to hire more workers there. Payroll employment in the state grew by 2.18% last year, while the household unemployment rate fell by 37.4%.

(c) 2006 Asset Securitization Report and SourceMedia, Inc. All Rights Reserved.

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