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Bad loans spell good news for dealers

Jim Henry is a special correspondent for Automotive News
UPDATED: 8/9/12 2:04 pm ET - Corrected

Editor's note: An earlier version of this blog included an incorrect quote mistakenly attributed to Neil Schloss, Ford Motor Co. treasurer.

Good news for dealerships: Credit losses are set to increase from historic lows.

Why is that good news? It means lenders are approving more subprime loans, something dealers have wanted.

Ford Credit said in its second-quarter report that its percent of charge-offs for bad loans out of total receivables was a record low of only eight basis points, or 0.08 percent.

"I wish I could explain why people are paying the bills," said Michael Seneski, Ford Credit CFO.

Studies show that since the last downturn, customers in distress have put making their car payment ahead of other monthly bills, including mortgage payments.

Several auto lenders said they expect a slight uptick in credit losses in the second half.

Losses "can't continue at these abnormally low levels," said Ally Financial CFO James Mackey.

That's partly seasonal. Credit performance for subprime customers is usually best in the second quarter because of tax refunds, lenders said. But it could also be part of a longer trend toward easier approvals.

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