The subprime segment is limping out of a three-year shakeout.
Subprime once looked like easy money. Since their customers have little choice, subprime lenders can charge interest rates two or three times as high as 'prime' lenders - 20 percent interest, or even higher.
Those high returns attracted a flood of investors and new lenders in the early- to mid-1990s. To gain market share, lenders approved riskier and riskier loans.
Those chickens came home to roost in 1997, when many subprime companies suffered losses. For the segment, delinquencies and repossessions were higher than expected. Meanwhile, used-car prices also fell, which made collateral worth less than expected. Wall Street, which had been applauding, turned thumbs-down on the segment.
Several bankruptcies and a wave of mergers began, and the trend has continued.