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Popping the subprime bubble myth

There is no subprime auto loan bubble, darn it.

That message came through loud and clear at session after session devoted to subprime lending during the Used Car Week conference sponsored by Auto Remarketing magazine last week in Las Vegas.

The recurrent theme was sparked by recent media stories -- presumably those by The New York Times -- that claim there is a troubling trend of consumers with subprime credit scores obtaining vehicle loans they don’t have the financial wherewithal to repay.

The articles liken those loans to the subprime home mortgage debacle that helped usher in the Great Recession.

Don’t believe it, said Melinda Zabritski, senior director of product marketing at Experian Automotive, a provider of credit, vehicle and marketing information.

Zabritski said subprime loans are growing with the market, not outpacing it. As subprime grows, so will delinquencies, but that’s to be expected, she added.

“You’re always going to have a certain percentage of subprime that defaults,” she said. “When you look at … all the open portfolios, over 50 percent of the market is prime. We’ve not had this floodgate of subprime. We won’t see the consequential flood of delinquencies.”

Joy Wilder Lybeer, senior vice president for the financial services group at credit bureau Equifax Inc., agrees. She said one in three auto loans are made to subprime borrowers and those consumers are paying their loans.

Here’s why, explains her colleague Lou Loquasto, vice president and auto finance leader at Equifax:

Through its Workforce Solutions division, Equifax has secured employment data from 75 percent of all Fortune 500 companies. Lenders and dealers use the data to verify consumer income and employment and gauge their ability to repay a car loan.

That helps lenders and dealers make sure consumers are in the right car, at the right loan size and the right payment, Loquasto said. It also helps them know which customers to nudge when they are late with their payments, when and how often.

That, coupled with consumers now paying their auto loans before they pay other loans, is the reason for “low delinquencies and losses,” he said.

So once more:

There is no subprime auto loan bubble, darn it.

You can reach Arlena Sawyers at asawyers@crain.com

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