SANTA MONICA, Calif. — Dealer financing is back to pre-recession levels after bottoming out in 2009, says Edmunds.com, the premier resource for automotive information. A key driver of this resurgence, according to Edmunds.com, is the revival of the subprime market, which accounted for a quarter of all new auto loans in the second quarter of 2012, up from a second quarter low of 17.6 percent in 2009. And the good news is that there’s even more room to grow, says Edmunds.com Chief Economist Lacey Plache, PhD.
“Pent-up demand from consumers unable to obtain financing during the recession has not been fully released and will continue to contribute to auto sales growth as these consumers get access to credit,” says Dr. Plache. “As a result, the auto industry can continue to count on expanding credit—a key driver of auto sales growth during the recovery to date—to boost sales for the foreseeable future.”
The auto loan rebound comes after new car sales funded by dealer financing fell 22 percent from 2007 to 2009, which in turn cut off potential buyers from credit and left the auto industry reeling. Only when dealers resumed offering financing deals to both prime and subprime buyers did the auto industry start to recover. Overall auto sales are now on track this year to reach their highest point since 2007.
But a return to the way things once were does not necessarily mean that all auto funding has fully recovered. In fact, one reason for the boost in dealer-financed sales is that “cash” funding from non-dealer sources is expected to remain nearly 40 percent below pre-recession levels in 2012. A key reason for this is the weak housing market, which has prevented buyers from using home equity to fund new car purchases—a situation that is unlikely to change any time soon.
Dr. Plache expands on her findings in a newly published piece in Edmunds.com’s Industry Center at http://www.edmunds.com/industry-center/commentary/credit-for-new-car-buyers-is-back-or-is-it.html
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