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Credit Codes Still a Mystery

July 2009, F&I and Showroom - Cover Story

by Melinda Zabritski

The changing market dynamics experienced by automotive finance sources last year continued to pose significant challenges for the automotive finance market in the first quarter 2009, with the high-risk consumer segment and delinquencies continuing to grow.

What’s clear is risk mitigation is the name of the game in what remains an unpredictable automotive lending market, with most traditional lenders moving away from the high-risk credit category. That spells further problems for dealers attempting to get credit-challenged consumers financed.

The first quarter also saw an increase in the number of car buyers being pushed out of new-car loans and into the used-vehicle market, another sign of the struggling economy’s influence on lender guidelines.

This month’s quarterly automotive finance analysis examines the challenges faced by the automotive finance industry, and provides a snapshot into consumer activity during the first quarter 2009.

Distribution of Automotive Loans By Lending Tier

Looking at the market by lending tier provides a clear picture of the shifts in credit quality among all open automotive loans held by consumers across the country. And during the first quarter, the trend of consumers shifting into lower credit tiers continued. For instance, while more than 58 percent of consumers with automotive loans were considered prime, the category decreased by 2.6 percent from the first quarter 2008.

Experiencing the greatest growth in the first quarter was the deep subprime population, which increased 6.03 percent from the prior year. This resulted in 12.8 percent of consumers falling into this high-risk category. Also increasing were the nonprime and subprime segments, which saw increases of 3.08 percent and 1.87 percent, respectively.

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