Subprime Buyers Pushing Late Auto Sales

Phil LeBeau | @Lebeaucarnews

Published 10:56 AM ET Tue, 20 Dec 2011 Updated 3:51 PM ET Tue, 20 Dec 2011 CNBC.com

As auto sales have surged in recent months, I’m hearing from more and more dealers about the renewed strength of the subprime and deep subprime buyer.

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Car Keys

You know the folks I’m talking about. Those who have a checkered (avg. score 550-620) credit record.

The same folks who were either shut out or chose not to buy a new or used car when the economy tanked three years ago.

The return of the subprime auto buyer is confirmed with the latest data from CNW Research and Experian.

• CNW reports approvals of auto loans for those with subprime credit ratings have surged 15.72 percent this month compared to November. By comparison, those with solid credit ratings are up just 1.36 percent.

• CNW says this year sub-prime auto loan approvals are up 53.9 percent.

• Experian reports the percentage of new vehicle purchases financed by loans to non-prime buyers increased 14.8 percent in the third quarter.

• Experian says auto finance companies are also seeing fewer loan delinquencies, a drop in the charge-off costs for loans in default, and a drop in the repossession rate.

Beyond the numbers, what I’m hearing from dealers is a change in who is buying. One dealer in Kansas City says there are more people coming in who qualify for a loan as the credit market has opened up.

Subprime Car Buyers 2:53 PM ET Tue, 20 Dec 2011

Another dealer in Florida says it’s becoming easier to get people into the car or truck they want as monthly payments have dropped.

According to Experian the average subprime auto loan for a new car in the third quarter was $457 a month. That’s down $19 a month compared to the same time last year.

Easier credit, greater liquidity, and the improving economy are all driving the surge in subprime borrowing. Banks and the captive finance operations of automakers are seeing the biggest increase in their portfolios. And more importantly, most in the industry see this trend continuing.

It’s hard to say how much of the rebound in auto sales is due to the subprime buyer. But make no mistake. The group is finally starting to return to the showroom.