Another Look At Auto Loan Quality And Independent Dealers

BATON ROURGE, La. - With the subprime mortgage mess still playing out, some observers think it’s only a matter of time before it boils over into the independent dealer lending market segment. If true, credit unions need to be leery of any subprime loans that they are carrying on their books.

“There’s a growing belief that the vast majority of business through independent dealers is subprime,” AppOne, Inc. COO, Gary Perdue said. “Forty-two percent of business is subprime.”

In fact, dealerships initiated nearly $50 billion in subprime new vehicle loans in 2006 alone, according to the Power Information Network (PIN), a division of J.D. Powers and Associates. Fair Isaac defines subprime customers as having a FICO Classic Auto Score below 650.

About 1.85-million of the 9.6-million customers in 2006 who leased or financed a new vehicle through any lender, including credit unions, were subprime according to PIN.

PIN data further suggests that 22.2% of subprime loans were made for domestic vehicles while Asian and European automakers accounted for 19.6% and 11.3%. (c) 2008 The Credit Union Journal and SourceMedia, Inc. All Rights Reserved. http://www.cujournal.com http://www.sourcemedia.com