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New Loan Data Supports NADA's Move to Help Auto Lending

September 26, 2008

Providing further prove of the need for the national dealer association to step in, a report from CNW Market Research released yesterday revealed just how tough auto lending has become.

The Bandon, Ore.-based research firm showed significant decreases in loan approvals and considerable increases in the number of institutions dealers shop to get a deal bought. The news came a day after the National Automotive Dealers Association (NADA) announced a two-part plan to encourage banking and financial services industries to provide more lending.

“Our message to the community and Congress is simple: Auto financing is sound,” said Annette Sykora, chairwoman of the NADA. “We just need liquidity to do our jobs.”

Sykora said the association will meet with major associations that represent the banking and financial services industries to discuss the reliability of the existing auto finance model, and the benefits to finance sources that continue making credit available for automotive retailing.

The group is also getting behind legislative efforts to stabilize liquidity in the economy, which has constrained the availability of auto credit – the lifeblood of auto dealerships.

Looking at CNW's recent report all lending tiers realized a decline in approvals, but the subprime segment was hit hardest. Approvals for that tier dropped more than 44 points from 67.01 percent in 2007 to 22.71 percent.

Meanwhile, the prime tier had an 81.36 percent approval rate, a drop of more than 9 points from the 90.63 percent reported for the year-ago period. The near prime tier recorded a 77.42 percent approval rate, a drop of more than 8 points from 85.56 percent posted during the year-ago period.

New-car dealers are also working harder for approvals, with the number of institutions shopped to get the deal bought continuing to increase. The sharpest increase was seen in the subprime segment with applications being sent to 7.9 institutions compared to 4.4 last year.

Applications for prime borrowers were sent to 3.2 institutions, nearly double the 1.8 institutions shopped in 2007. Near prime borrowers realized only a slight increase, as the number of institutions shopped jumped from 2.6 institutions during the year-ago period to 3.8 for the first three quarters of this year.

The report also analyzed loan approval rates for Arizona, California, Florida and Nevada. All four states experienced declines in prime and near prime loan approvals, with the sharpest decline reports in the subprime tier.

Arizona had a 32.17 percent approval rate in the subprime segment, a nearly 44 point drop from the 75.62 percent recorded in the first three quarters of 2007. California, Florida and Nevada all had more than 50 point drops in loan approval for the subprime segment in 2008 compared with the year-ago results.

The four states also experienced an increase in the number of institutions shopped in 2008 compared to the same period a year ago. In California, considered a bellwether for vehicle sales along with Florida, the number of institutions shopped almost doubled for all tiers compared to the year-ago period.

In Florida, however, the number of institutions shopped remained relatively stable when compared to the year-ago period.

Overall, the subprime tier’s share of loan approvals fell by nearly a point from 1.36 percent in the first quarter to 0.51 percent in the third quarter. The near prime segment recorded a 49.87 percent share of loan approvals, a decline of 7.14 points compared to the first quarter. The prime segment jumped nearly 8 points to take a 49.62 percent share of loan approvals.

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