DONNA HARRIS

Subprime's biggest threat yet

Donna Harris covers automotive retailing for Automotive News

The rebound of subprime finance business was evident at the National Automotive Finance Association conference earlier this month, says Executive Director Jack Tracey.

Attendance jumped 25 percent to about 250 this year, he says. The trade group services the below-prime auto finance industry.

Subprime lenders are able to obtain plenty of funding, Tracey says. But they're so elated to be in business that they may miss changes ahead that ultimately could threaten their livelihood: the indirect lending model.

The biggest potential threat to subprime finance could be the Internet, based on discussions at the conference, he says.

Here's why: Subprime finance -- lending to customers with risky credit -- is primarily arranged through dealerships.

But now customers are price-shopping cars online, reducing gross profits per vehicle, Tracey explains. And they're also shopping for financing online.

And when online, customers seem more likely to opt for a direct loan from the lender, he says.

"We need to talk more about that," Tracey says. "The indirect lending model we're using now may not work going ahead."

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