Dealerships Did Nearly $50 Billion in Sub-prime New-Vehicle Loans

Dealerships Did Nearly $50 Billion in Sub-prime New-Vehicle Loans

Auto dealerships initiated nearly $50 billion in sub-prime new-vehicle loans in 2006, according to real-time retail transaction data from the Power Information Network (PIN), a division of J.D. Power and Associates.

Approximately 20 percent of the 9.6 million customers who leased or financed a new vehicle through dealerships in 2006 were in the –sub-prime” category according to PIN. Indirect loans and leases accounted for 74 percent of all new-vehicle financing in 2006.

–While it is unlikely that sub-prime auto lenders are exposed to the same level of risk as sub-prime home mortgage lenders because auto lenders do not have variable rates,the potential still exists for increased charge-offs on this paper,” said David McKay, senior director of auto finance and insurance at J.D. Power and Associates.

–The economics that drove sub-prime consumers to default on their home loansãrising interest expense for credit cards and home loans, higher energy costs, lower home values and wage stagnationãwill pressure these consumers to pay for their vehicle loans. Any tightening of the sub-prime market would leave the lenders and the automakers that have heavy portfolios of sub-prime customers exposed to increased losses and vehicle sales in the future business.”