Subprime customers who were prime-risk before the recession are a profitable, reliable niche, dealers and lenders say.
"You had plenty of people who had credit challenges because of what was happening on Wall Street," says Aaron Dalton, senior vice president at subprime lender Prestige Financial Services. Since then, he says, "the country started to pull out of the recession, and more financing is available to those deeper-credit lenders."
Some dealerships even go out of their way to pitch consumers who are just leaving bankruptcy, says Robert Davies, president of OnlineBKmanager.com, which sells leads to dealerships based on public records of bankruptcy filings.
Consumers are debt-free when they come out of bankruptcy, and almost 40 percent of the time, they buy vehicles within 30 days of discharging their bankruptcy cases, he says.
Through April this year, there were 364,258 personal U.S. bankruptcy filings, down 14 percent from a year ago, according to the American Bankruptcy Institute. While the overall numbers are down, Davies says many consumers coming out of bankruptcy had a history of good credit before stumbling as a result of the downturn. "We are seeing more and more people coming off a 700-some-odd credit score," Davies says. "The economy just took them down."
LaFontaine Auto Group uses leads from OnlineBKmanager.com at its nine dealerships in Michigan. Mike Komander, LaFontaine director of financial services, estimates that for all the stores, bankruptcy cases accounted for about five units a month, or about 60 deals, in 2012. That was not bad, he says. He says lenders are increasingly willing to finance consumers with damaged credit if they keep up auto payments. That wasn't the case three years ago, he says.
Lenders have denied changing approval standards. But dealers say subprime customers are getting financed easier. Experian Automotive data bear that out: In the first quarter this year, credit scores below 550, or deep subprime, accounted for 11 percent of outstanding auto loans, up from 10.7 percent in the 2012 period.