September 2008 - Feature
Credit Risks in a New Economy
By Eric Lindeen
In the June issue of F&I, the article “Taking on Today’s Tightening Market” discussed how top auto finance experts are evaluating their business practices in the wake of the subprime meltdown. Lenders have tightened policy and decisioning parameters in response to the credit crisis to manage risk and insulate themselves from uncertainty in the market. However, many lenders recognize that one size no longer fits all, and are applying different strategies based on varying geographic
and customer segments. While this approach adds a layer of complexity to their decisioning logic and processes, it also enables the use of alternative data to make better credit decisions and selective tightening of riskier sub-segments.
The good news for automotive lenders and dealers is that non-mortgage products have seen a nearstatic to relatively-modest increase in delinquencies. In fact, many consumers are choosing to walk away from their mortgages entirely while continuing to make payments on credit cards, auto loans and other consumer debt. Finance experts believe this is because consumers realize their credit scores recover
faster from foreclosure than from bankruptcy.
It’s too early to tell how long this trend will continue or how it will impact lenders in the long term, but the initial findings are positive, and there are ways auto lenders can respond. In a recent Webinar, “Credit Risk in the New Economy,” three top executives weighed in on today’s credit risk factors and discussed new ways lenders are approaching this risk.