Lenders to vehicle buyers with poor credit have been on a two-year roll. But higher interest rates and gasoline prices are dimming the outlook for the rest of 2006, lenders warn.
Subprime lenders' loan volume rose last year, the National Automotive Finance Association reports in its 2006 Non-Prime Automotive Financing Survey. Delinquencies, vehicle repossessions and losses dropped in 2005, the survey says.
But this year, "people's budgets are getting squeezed," says Lou Loquasto, vice president of marketing and business development for Wells Fargo Auto Finance. He predicts weaker results for subprime lenders this year because "delinquencies are up."
The 23 subprime lenders that responded to the association survey said their loan volumes increased in 2004 and 2005. The percentage of their accounts that were delinquent for 30 days dropped to an average of 6.8 percent last year from 7.6 percent in 2004.
Repossessions per lender averaged 1,695 a month last year, compared with 1,796 in 2004, the report says. The average loss per repossession was $5,997 in 2005, down from $6,007 the previous year. In 2004, subprime lenders reported their lowest repossession losses in five years.
This year, though, higher-risk customers are finding it harder to qualify for a loan, says Bill Jensen, national subprime executive at Chase Custom Finance, a division of Chase Auto Finance. Rising interest rates are increasing monthly payments, Jensen says.
Higher interest rates and gasoline prices also are boosting customers' credit card bills, Jensen told Automotive News. Some loan customers "charge more and delay paying it off," he says. That behavior creates a higher risk of delinquency, he adds.
At the same time, relatively low unemployment rates and strong used-vehicle values help offset negative factors, lenders say.
Good used-vehicle values lower losses on repossessions, says Preston Miller, a COO of AmeriCredit Corp. And as long as consumers have jobs, Miller says, they can pay their bills.
You may e-mail Donna Harris at [email protected]