A string of setbacks for a subprime auto lender has one analyst wondering whether its relationship with a life insurance company that has been its prime benefactor could be headed for the scrap heap.

General Acceptance Corp., a Bloomington, Ind., company that makes car loans to people with bruised credit, declared after trading closed Friday that it had defaulted on a $70 million line of credit provided by GE Capital Corp. and violated loan covenants.

The default prompted Jeffrey L. Davis, analyst at NatCity Investments in Indianapolis, to question whether Conseco Inc., a Carmel, Ind., insurance concern, would continue to give General Acceptance managerial and financial support.

"Judgment day is approaching," as Conseco decides whether the business is worth staying in or not, said Mr. Davis, one of the few analysts who covers the subprime lender.

But Conseco-which in April bought $10 million of subordinated debt from General Acceptance and put two of its executives on the board-said it knew of the company's problems before the default.

"Our perspective on the company hasn't changed," said James Rosensteele, vice president for investor relations. "We expect it to be a profitable investment."

General Acceptance's chief financial officer, Martin C. Bozarth, said the company is working on new agreements with its lender.

The default last week was the second in General Acceptance's two years as a publicly traded company. In January 1996, eight months after going public, the company defaulted on its first loan from GE Capital, a $100 million revolver.

As a result of the latest default, the interest rate on General Acceptance's loan was increased to 650 basis points above the one- month London interbank offered rate, from 450 basis points. Last month the company reported a first-quarter loss of $7.7 million. That followed reported 1996 losses of $9.1 million.

General Acceptance is unusual among subprime auto lenders in that it operates used-car dealerships. The shops, called Drive Home USA, are in six states.

Most subprime lenders just buy installment contracts from dealers. Despite its extra degree of closeness to the customer, General Acceptance started having problems shortly after it went public in April 1995, said Mr. Bozarth.

The company made a rash of bad loans, and Mr. Bozarth acknowledged, "A computer conversion was very problematic for us."

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