JIM HENRY

More loans mean more risk

Automotive News | May 16, 2012 - 12:01 am EST

Some dealers say credit is still too tight to suit them, especially in subprime.

But that can't last much longer, according panel discussions at last week's Auto Finance Risk Summit in Dallas.

"Things aren't going to be rosy forever; we've all got to keep that in mind," said Tom Redding, director of risk management for First Investors Financial Services Inc., a subprime auto lender based in Houston.

If you're in charge of minimizing risk for an auto lender, "rosy" means risk is low. In fact, losses are at or near historic lows for many auto lenders, even though volume has grown.

But competition is forcing lenders to continually loosen approval standards. The average credit score on loan originations has slowly declined since the recession. Lenders are approving longer loan terms and more subprime loans.

In short, risk is starting to rise, according to Experian Automotive.

"I don't consider the environment we're in to be stable by any means," Redding said.

But if lenders are buying deeper, dealers should see more sales. That's a good thing.

Jim Henry is a special correspondent for Automotive NewsJim Henry is a special correspondent for Automotive News

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