F&I managers: Prepare for more buyers with poor credit

F&I managers have their work cut out for them.

That's because the average U.S. car buyer has pretty iffy credit, according to the latest data compiled by Morgan Stanley for its Auto Credit Quality and Auto Credit Availability indices.

Auto credit quality fell 1.4 percent in July, compared with the year-earlier month, on higher losses and delinquencies as tracked by Moody's ABS and Capital One, according to Adam Jonas, Morgan Stanley's auto analyst. July was the sixth consecutive month of decline after 37 consecutive months of increases, Jonas said in a voicemail distributed to clients and journalists.

And August data from Capital One show the "leading edge" of credit quality is continuing to deteriorate, Jonas said. Capital One has seen year-over-year auto loan losses for 12 months, as well as a rise in delinquencies for seven straight months, he said.

"The credit quality of the average U.S. car buyer is clearly deteriorating here and it's going to keep getting worse for a long time," Jonas said.

There are a couple of bright spots, however.

Auto credit availability posted year-on-year gains for 14 straight months, driven by prime, near prime and subprime approvals, Jonas said. Approvals on all three were higher in July compared to a year earlier.

Also, the auto loan-to-value rate in July was stable at 91 percent. Loan to value means the percent of the present value of a vehicle a consumer is allowed to borrow. So if the car is priced at $10,000 and the loan to value is 90 percent, the customer can borrow $9,000 and make a $1,000 down payment.

The end result, though, is that selling cars will become a little more challenging even if the customers are there and willing.

"The manufacturers are going to have to work harder and go deeper to keep that incremental auto buyer on the way to that 17 or 18 million" sales a year, Jonas said.

"It's just the price of the recovery," he said. "Deal with it, get used to it."

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