SAN FRANCISCO - The market for new car loans may be leveling off with higher interest rates, but few see a fall-off in the overall demand for auto financing. Montgomery Securities analyst Joe Jolson says that may not be all good news for many banks. Indeed, banks remain the dominant player in making loans to the most creditworthy buyers of new cars, but many observers expect that to be the slowest growing segment of the $350 billion-a-year auto loan market.

The real challenge, argues Mr. Jolson, is not volume, but quality. Best known for his coverage of California thrifts, Mr. Jolson says the evolution toward a growing used car market and an ever-increasing number of subprime borrowers will test banks anxious to maintain market share.

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