Even as the United States began to emerge from recession in 2010, many economists were wary. With a tepid recovery at best, many economists warned that the United States could be headed for a double-dip recession. This summer’s debt ceiling debate, continued high unemployment and stock market malaise only exacerbated these fears.

While I’m certainly not an economist, and I go out of my way to remind clients and journalists that I’m not in the forecasting business, I still consider a second recession a very real possibility. Consumer confidence seems to be waning, unemployment is still high, and businesses are hesitant to invest in people and equipment.

Automotive retailers and lenders are justifiably nervous. The painful memories of the last recession are too fresh in too many minds. However, there are reasons to believe that even with a second recession, the industry as a whole is better positioned to weather the storm.

One key indicator is the percentage of loans dedicated to the subprime risk tiers. In Q1 2007, sub-prime loans peaked at 48.53 percent of the automotive loan market. When the economy plunged, these loans were the quickest to become delinquent or go into default. By Q4 2008, 30-day delinquencies jumped to 3.30 percent.

At the same time, global credit markets began to tighten and automotive sales plunged to historic lows. This “perfect storm” forced many lenders to the sidelines and left automotive retailers with fewer options for securing loans for their customers. Low demand, coupled with tightened credit, was obviously a disaster for many automotive retailers.

These conservative lending practices created tightening of the market and have put the industry on strong footing today. In Q1 2011, 30-day delinquencies receded to 2.52 percent and the total volume of dollars at risk dropped to $13.5 billion. In addition, while the market share for subprime loans has begun to inch back up, it is significantly below where it was in 2007. In Q1 2011, subprime loan share was 41.89 percent, compared with the previously mentioned peak in Q1 2007. Through better mix allocation lenders have reduced risk throughout their portfolios, making it less likely they will see default levels of the past if the economy begins to recede. Of course, any rise in unemployment will cause defaults, but the blow will be softened somewhat by an improved loan portfolio with less risk.

Without heavy defaults and with fewer assets at risk, lenders likely will be able to maintain their current lending strategies, which still include some moderate risk in loans to the subprime market. While too much reliance on sub-prime loans can be a volatile strategy for lenders, maintaining some moderate amount of subprime loans will be critical to helping dealers maintain profitability in a down market.

Most automotive retailers are still dependent on generating profits from used vehicle operations. In Q1 2011, 54.57 percent of used vehicle loans went to subprime customers. Therefore, if lenders continue to keep a reasonable portion of loans in the subprime risk tier, automotive retailers can maintain the profitability of their used vehicle operations.

A key for retailers will be to closely monitor which of their lenders truly understand the sub-prime market and to maintain good working relationships with these lenders. When the credit markets were rife with activity in 2007 and early 2008, many lenders dipped into the sub-prime market, and it was easy for retailers to find loans for this risk tier. But as credit tightened, many lenders pulled back from subprime, leaving retailers scrambling to find sources for these loans.

This situation left many automotive retailers unable to fulfill demand for customers with subprime credit. While the tightening of the credit markets was a contributor to the steep drop in sub-prime lending, failure by automotive retailers to understand who the strong sub-prime lenders were also contributed to a drop in lending in this risk tier.

In case the economy does recede, it is important for automotive retailers to do their homework now, to find out which lenders are the strong players in subprime and to make sure they will still have a pipeline to these loans.

Of course, no one can predict with certainty if the economy will go into recession. However, even if it does, lenders and retailers are better positioned today than they were in 2008. If automotive retailers do their research now, they can maintain a pipeline to sub-prime credit that can help prop up sales even in a down economy.