Growing Sub-Prime Auto Loans - New Troubles for Automakers?
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After reporting the growth in auto loansto borrowers who do not have prime credit scores, I heard from a number of people who think this is bad news.
Essentially, their concern is that auto dealers writing more loans for those with non-prime (below 680) credit scores shows the auto industry is going too far to close sales.
I don't buy that, especially after going over the numbers with some of the most cautious players/analysts/observers in the auto business.
Experian Automotive crunches the data on all the new and used loans written every quarter. In the first three months of this year, there were approximately 4.9 million auto loans written.
Melinda Zabritski, an auto credit analyst with Experian, is not worried about the growth in sub-prime loans. She says this is the natural and healthy evolution of the auto market. Zabritski also pointed out not all non-prime auto loans will wind up in default or repossession. In fact, the vast majority are paid off.
If anything, the growth in sub-prime auto loans is more a reflection of greater availability of credit, and less of an indication dealers are selling cars and trucks to people who can't afford them.
The industry and dealers are not repeating the same mistakes/patterns of 2008. Back then costly incentives and the need to close sales to keep up with production had dealers making deals with anyone who walked on the lot- regardless of the credit rating.
We haven't seen that yet in showrooms. That could change, but right now the growth in non-prime auto loans is not a major concern in the auto industry.
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