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Finance

Correction in Full Swing

July 2008, F&I and Showroom - Feature

by Jim Bass - Also by this author

I often listen to the Classic Radio channel on Sirius Satellite Radio when I'm in my car going somewhere important, such as meeting a dealer or finance company in the Dallas/Fort Worth area. I enjoy hearing some of those broadcasts, which I remember fairly well from my youth. A few weeks ago I was listening to a "Fibber McGee & Molly" show, which was originally broadcast in 1939. On the show, McGee and Molly would often discuss all sorts of commonplace events, definitely with a comic flair — such as walking home from the movie theatre and having locked the door and forgotten to take the front door key.

In this particular broadcast they were discussing their credit problems. Had Molly mailed in the payments on the washing machine, refrigerator and the car? The car had been originally financed in 1932 and had been refinanced twice since that time. Both were fearful that the car might be repossessed due to their failure to make the payment on time. I doubt the term subprime existed at the time, but McGee and Molly almost certainly would have fallen into that category today. This was an episode from almost 70 years ago when the United States was still in a recession. There were fears of entering a global war and people needed some laughs to lighten up. The situation seems to parallel today’s environment even though some details are different.

Have we really learned anything new in the past seven decades? One wonders considering the current situation that has developed in the subprime/nonprime auto finance market. To me, it just makes no sense. I understand the credit crunch as it applies to subprime mortgages. We now know there was precious little underwriting of any sort, no proof of income in many cases, and a market driven by greed — the greed of many different players. I discussed this situation in an article that appeared in the October 2007 issue of F&I magazine. However, the total lack of underwriting hasn't been widespread in the auto finance sector. If anything, the diligence with both dealers and borrowers has been much better than it was in the early to mid '90s. But while the underwriting techniques, stipulation checking and skills are in place, there is one flaw quite similar to the '90s.

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