Subprime loans almost always rejected

Subprime loans almost always rejected

Automobile loans to poorer credit risks are being approved less than 10 percent of the time as the U.S. recession drags on and are posing a serious obstacle to new vehicle growth at General Motors Co. and Chrysler Group LLC, according to the Associated Press.

The current reject rate for sub-prime auto lending is a huge drop from historic standards that, prior to the economic meltdown, saw about 60 percent of sub-prime auto loans approved. Encouragingly, however, today's 9-percent approval rate is up compared to last year, when the approval rate fell to just 5 percent, the AP article said.

Subprime buyers currently account for about 25 percent of the total auto-loan market, but sub-prime business at GM and Chrysler is said to amount to only about 6 percent of all vehicles financed.

Chrysler recently announced an alliance with Santander USA, a sub-prime lending specialist, through which it hopes to boost its ratio of loans to buyers with sub-prime credit. And General Motors said Thursday that it had agreed to buy subprime financing company, AmeriCredit, for $3.5 billion.

Our dealers have been telling us that not having an in-house finance arm hurt our ability to finance certain loans and leases, Edward E. Whitacre Jr., GMs chief executive, said. It hurt our ability to meet rising customer demand for GM cars and trucks. Now were going to fix that.

GM said its sales to customers with subprime credit ratings have increased significantly since beginning a program with AmeriCredit aimed at writing loans for shoppers in that category last September. Ownership of AmeriCredit, which already has a relationship with about 4,000 GM dealerships, will allow us to provide a full range of financing alternatives for all customers throughout all economic cycles, Whitacre said.

AmeriCredit, which has 800,000 customers, specializes in lending to consumers who have credit ratings between 500 and 650. A rating below 640, on a scale that ranges from 300 to 850, is generally considered subprime.