Auto Credit Express Blog
February 18, 2008
Change in the subprime auto loan landscape?
Here at Auto Credit Express, we were reading a recent article in Automotive News thatwas titled “Lenders Shun Subprime Marketâ€. Does this mean the end of your subprime department? How can LotProOnline software help you out?
Been there, done that
Before the subprime mortgage crisis reared its ugly head and began affecting the rest of the economy back in 2006, automotive sales had been fairly consistent since 1999 (and even a few years prior to that). Averaging 17 million cars and trucks per year (give or take), the manufacturers were able to maintain this sales pace by increasing or decreasing rebates to meet the minor speed bumps in the marketplace caused by a temporary softening in the economy. Captive finance companies of the automakers were also able to tighten and loosen lending requirements to move the iron when it was required.
To those of us that grew up in the 70’s and 80’s, however, the cyclical nature of the economy was much more apparent as it applied to the car business. When the economy was down, car sales took a big hit. When the economy was doing well, car sales boomed and life in Michigan, as well as other states that had assembly plants, was good.
The domino effect
Unlike the communist world domination theories of the 50’s and 60’s, the effect of a down economy prior to the 90’s was very real. And while the car companies were able to avoid the economic pitfalls of the 90’s, the subprime mortgage crises is too big to avoid. At this point in time, there is no end in sight. Although certain economists have looked into their crystal balls and said the end of 2008 or 2009, it is still too soon to predict with any certainty. And until and even beyond that time, the adjustment will be economically painful for many people and many industries.
But if you look back, we have seen this before. A prime example would be Michigan back in the late 1970’s and Texas in the late 80’s. A rise in gasoline prices in the late 1970’s caused the economy in Michigan to go south before the big 3 were able to respond with more fuel efficient cars (with a corresponding drop in gasoline prices). A drop in gasoline prices precipitated the economic slowdown in Texas in the late 1980’s with a spike in home foreclosures that lasted almost 3 years.
In both cases, the economy came back. During both crises, banks and lending institutions adjusted their lending criteria in the face of hard economic times. In both cases, you could say that lenders were “shunning†both the subprime and standard lending markets.
The Bottom Line with LotProOnline
As in the past, dealers need to explore different financing options for their customers. If a standard or subprime lender drops you, have another one waiting in the wings. Especially in the case of subprime lenders, be aware of your look to book ratios and educate yourself on their lending parameters. Develop and cultivate relationships with all your lenders. Because you need to be even more diligent with your subprime deals, LotProOnline can help your subprime department. It will automatically rebook your vehicles, store your customer information and update your lender programs to help you avoid costly mistakes and maintain your good relationships with lenders. For more information, contact us at 888.535.2277 or by using our quick contact form.
