Subprime Slightly Recovers

New Orleans — Subprime auto lending, a hypothermia victim of the nation's 2008 credit freeze, is showing slight signs of recovery, say participants at a J.D. Power and Associates automotive conference here.

Subprime went on life support during the credit crisis, as lenders declined financing for most people with poor credit histories. But reports of subprime's death may be exaggerated.

“We're still doing subprime, we're just not doing half as much as before,” dealer Thomas M. Acheson, CEO of the Tameron Automotive Group in Birmingham, AL, tells Ward's.

Doing business with consumers with low credit scores is a matter of necessity, he says. “If there are still 45% of people out there with impaired credit, we want to do what we need to do to get our fair share of their business.”

Subprime borrowers now must have down payments and co-signers, “something they didn't need before,” Acheson says. And dealerships such as his require proof of employment and income in order to expedite loan approvals. “We'll do whatever it takes.”

Under those conditions, some lenders will take the subprime risk. Others won't, say financial experts at the conference held in conjunction with the National Automobile Dealers Assn. convention.

“What is most stunning about the recent lending patterns is how they differ by segments,” says Raj Sundaram, a senior vice president at DealerTrack Inc., a firm that matches dealers to lenders.

“We saw 67% of subprime loan applications approved in 2007. That was down to 16% in the fourth quarter of 2008. It has since gone up to 18%.”

Some lenders “will be willing to buy that type of paper,” says Mike Jurecki, CEO of RouteOne, a firm that serves as a conduit for auto financing.

Lenders are assuming new roles, some of them scaled-back. One-time national lenders are becoming regional lenders, former regional lenders are becoming state lenders and credit unions are becoming bigger players in auto lending, filling some of the gaps, Jurecki says.

“We've seen applications to credit unions double in the last year,” he says. “But they still are in single digits as far as market share.”

One dealer at the conference says, “Credit unions are afraid of us.” It could be because dealers, scrambling to find financing for their customers, have inundated some credit unions with loan applications on behalf of would-be car buyers.

“One credit union was overwhelmed when it said it was interested in that business,” Sundaram says. “They had the money but not the resources to handle it.”