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Loan Approvals Down, Reports CNW

April 16, 2008

Aside from the weakening sales pace of new vehicles, automotive dealerships are finding it increasingly more difficult to get their customers financed, according to a recent report from CNW Market Research.

The Bandon, Ore.-based market research firm said loan approvals between Jan. 1 and March 20 are lower than what was reported during the same period last year. And this is occurring across all lending tiers, with subprime buyers being the hardest hit.

Approvals for subprime loan applications fell to 57 percent, with only 1.36 percent of all loan approvals being subprime in the first quarter of the year. For the same period last year, more than 12 percent of all loan approvals were subprime.

Also making the job harder for new-car dealers is the number of institutions that need to be shopped to get a deal bought, even for customers with higher credit ratings.

In the opening weeks of this year, applications for prime borrowers were sent to more than three different financial institutions before landing a loan. Last year, applications were sent to only 1.8 institutions. For the subprime borrower, applications were sent to more than five institutions. Last year, subprime credit applications were sent to 4.2 sources.

The situation is intensifying an already tough sales environment. Already, first quarter performance has annual sales on pace for 15.2 million units, the lowest mark in more than a decade. And banks are already suspending home-equity lines of credit, which had become a common source of money for auto purchases.

“There is no doubt that calendar-year 2008 will be a tough year,” said Art Spinella, president of CNW Research. “But the impact of housing, credit and other economic factors shouldn’t be broad-brushed against the entire country. There are pockets still doing well, including the agriculture Midwest, where some dealers are having near record vehicle sales.”

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