Subprime Market Aids Car Industry Growth
DAVID GREENE, HOST:
As anyone who was on the road this weekend knows, the summer driving season has begun. But summer is not just the time for a lot of driving. It's also the time for a lot of car buying, and the auto industry is feeling pretty good about this season. As NPR's Sonari Glinton reports, some car buyers are returning to showrooms after a long hiatus. Many are consumers with less than perfect credit.
SONARI GLINTON, BYLINE: When you think about the car business and its near collapse a few year ago, you have to remember that it happened alongside the housing collapse. When credit dried up in the mortgage industry, it dried up in the auto loan business as well. Slowly that's begun to change.
MELINDA ZABRITSKI: You're certainly seeing more volume come into the market place, so you've got more consumers out there purchasing.
GLINTON: Melinda Zabritski is with Experian Automotive. It's a subsidiary of Experian, one of the companies that tracks consumer credit. She says part of that increased volume is because of car buyers with less than perfect credit, the so-called subprime market.
There is a growth in overall subprime. While we're seeing that growth, it's still not what we saw from several years ago, you know, when you go back to, into 2007, subprime was nearly half of all of vehicle sales.
Slowly subprime buyers are coming back. Zabritski says you see that with the average credit score for new car buyers coming down.
ZABRITSKI: I think where you see credit scores coming down, it does impact vehicle sales, because people with lower credit scores are now more able to get financing than what they were able to get over the past couple years.
GLINTON: That loosening of credit is having a impact on the auto industry. It's helping not only get consumers in the showroom but it's helping to them to leave with a new car. Jessica Caldwell is an analyst with Edmunds.com. She says in the aftermath of the 2008 financial crisis, essentially only people with perfect credit were able to get new cars loans. Now the business is opening up to those with less than prime credit. Caldwell says that could be a good thing.
JESSICA CALDWELL: It's good because you're looking at a portion of the market that has been relatively untapped for the past few years. So people that you could bring in from that market is just going to add to your bottom line, because those are not sales that you would have counted on in the traditional recession, post-recession environment.
GLINTON: Some of the car companies that are capitalizing on the easing of credit are Suzuki, Mitsubishi, Kia, and Chrysler. Chrysler is one of the fastest growing car companies, and a good part of that growth recently is from the subprime market. Caldwell says that growth might not be all good, especially for brands like Chrysler that are trying to reposition themselves in consumers' minds.
CALDWELL: Subprime can tarnish your image in a way. I mean, if you have a high percent of subprime buyers, I think people start to catch on and realize that - or think that, you know, perhaps your brand isn't as prestigious as you would like to think it is.
GLINTON: Regardless, lenders may be more willing to take on subprime borrowers because consumers are handling car loans better. Again, Melinda Zabritski with Experian Automotive.
ZABRITSKI: More consumers are paying their bills. If they begin to become delinquent, they're catching back up again so that the loan is not going bad, if you will. It's still staying open and on the books.
GLINTON: Defaults are down. Late payments are down. Repossession rates are at an all-time low. Zabritski says not only have consumers and the car companies been chastened by the economic collapse, but so have the banks. She says while more people are able to get credit, the banks are more careful about how and how much they're lending customers.
ZABRITSKI: Lenders get more sophisticated every single year. There's a lot of sophistication in managing the accounts once they're on the books, in contact strategies, or if it looks like payments are becoming a little late, as well as how they manage their portfolios. I think you definitely see an increase in sophistication to keep the portfolio steady.
GLINTON: So credit is more readily available. Consumers are being more responsible. The car companies are healthier. The only thing the car industry is waiting for is a better economy.
Sonari Glinton, NPR News. Transcript provided by NPR, Copyright NPR.