Subprime Auto Borrowers Fret

A survey says Americans are getting nervous when it comes to their chances of getting a car loan, because of the subprime mortgage crisis.

Polled people were asked: “Given the fallout in the subprime mortgage market, how concerned are you that your ability to obtain credit for something like a car loan will be affected?”

One-third said they were “extremely” or “somewhat” concerned their credit may be at risk.

GDEXAuto, a Web-based marketplace for auto dealers and lenders, commissioned the survey of 1,000 consumers.

“Next to mortgage lenders and home builders, no one is keeping a closer watch on subprime finance trends than America's automobile dealers and affected lenders,” says Michael Sheridan, president and founder of GDEXAuto.

Some auto-loan providers say the subprime mortgage mess has affected their operations, while others scratch their heads, wondering why their home-loan counterparts weren't more careful.

“The subprime mortgage debacle has affected us,” Joseph Pendergast, a group vice president at Chevy Chase Bank, tells the annual Auto Finance Summit.

Paul Rule, a subprime loan manager at Chase Auto Finance, says he has not seen the nation's subprime mortgage problems spilling over to automotive lending.

“But I'm answering a lot more questions than I used to,” he tells a Finance and Insurance Management and Technology conference‥

Subprime mortgage lenders “weren't limiting their risks like automotive does,” says David Kelly, director of finance operations for the Easterns Automotive Group in McLean, VA. “Coming from the mortgage field, I wonder what they were thinking.”

Most auto dealers do a good job about getting customer loan stipulations, such as proof of income and references, says Kyle Birch, an executive vice president of AmeriCredit Corp.

“Most dealers understand subprime,” he adds.

But Rule adds: “A fair amount of contracts don't come in with all the stips (stipuations).”

Clearly, subprime mortgage firms failed “in doing loans without proven incomes,” Alexander Keechle, a senior vice president of Drive Financial Services. “A shock like that to the system allows a return to a more rational way to underwrite.

“So it is good for all of us.”

Automotive subprime financing went through its own crisis in the late 1990s when lending got too loose and the default rates started rising. It was a lesson learned, says Pendergast.

“A few years ago there were huge losses for subprime auto lenders,” he says. “Now we have a lot of successes.”

So even though subprime mortgage companies may be in trouble, subprime auto lenders generally are in good shape.

“Automotive non-prime and subprime lending is going no where but up,” says Jim Bass, executive director of Drivers Select, a used-car operation in Dallas.