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Is Subprime Lending Making A Comeback?


Now to matters of personal finance. As we've talked about often on this program, when the economy took a turn for the worse about five years ago, a lot of industries took a hit - sales of big ticket items, like cars, especially. But now the auto industry is rebounding and our next guest tells us that some of that bounce-back comes from car buyers with less than perfect credit.

NPR's Sonari Glinton covers the auto industry. Sonari, welcome back. Thanks for talking to us once again.

SONARI GLINTON, BYLINE: It's good to be here.

MARTIN: So tell us again. Why have auto sales been slow the last couple of years?

GLINTON: Well, auto sales have been slow because car sales mirror consumer confidence, so when you look at consumer confidence, that's one of the ways you can tell what car sales are going to be, and like recently, you know, when you have an economic collapse followed by a recession, consumer confidence is not going to be there. People, even if they have a job, are not going to go out and purchase a large ticket item like a house or a car.

You pair that with that the collapse involved banking and credit, and credit was drying up, and then you add on top of that unemployment, and you saw car sales, which were at a high of about 17 million, fall down to the low teens. And we're only now starting to get back to, you know, about 14 million possibly this year.

MARTIN: How hard has it been to get financing to buy a new car in the last couple of years?

GLINTON: Seven years ago, the average credit score was about 720 to get a new car, and a lot of people were getting cars, and not only were they getting, you know, a first car, they were getting - not even a second car, but there were a lot of people getting third and fourth cars. I mean, just think exactly what was happening in housing was happening in the auto industry, so there was this real run on banking and credit in the auto industry.

And as soon as the economic collapse happened, all of that dried up and the average credit score swung up to about 780. Now, the highest is 800. And now we're seeing, after that overcorrection a few years ago, we're now seeing credit opening up and part of that is responsible for what is a rebound in the auto industry, is that banks and car companies are looking at people with less than perfect credit and opening up new car loans to them.

MARTIN: You know, ironically, though, doesn't the newest data suggest that more Americans are making their car payments on time now than were doing so during the heart of the economic downturn?

GLINTON: Yeah. People are...

MARTIN: What do people think that means?

GLINTON: There is a new austerity. There is a new sort of realization amongst people, like in every single one of the - like if you look at the indicators that show personal responsibility, at least in the car industry, repossessions are at an all-time low. Defaults are at a low. Late payments are low. So people are getting a car that's more matched to their personal finances.

Banks are being more stringent and even though they're opening up credit to people who have less than perfect credit, they're being more sensible than they were. So before, where they may have given you the whole loan, now they're making you pay a larger down-payment. For people with less than prime credit, you know, the banks are being more thoughtful about how they deal with you, so if you miss a payment, you might get two or three emails. You might get a phone call.

I mean, you think about it. In a tenuous work environment, you don't want anything getting in the way of you getting to the job that, you know, you're worried about keeping.

MARTIN: I'm talking with NPR's Sonari Glinton and we're talking about the auto makers loosening up on credit, even to people with less than perfect credit. So, Sonari, are there car makers who are more likely to lend to people with less than perfect credit and are there some auto makers who are not?

GLINTON: Well, the car makers who are more likely to lend to people with less than perfect credit tend to be Kia, Mitsubishi, Suzuki and right now Chrysler is getting into this group. Now, there are some car makers, like Toyota and Honda, they rarely deal with people with less than prime credit, and you can see it almost in the marketing, in where they put themselves. But Chrysler - and especially Dodge, which is one of their brands - they've gone after the less than prime customer.

And you can lend to people with less than prime credit, but you just have to be wiser and smarter about how you lend to them, how much you lend to them, and how you deal with them over the course of a loan.

MARTIN: Before we let you go, there's been a lot of discussion over the last couple of years, since the downturn, of whether credit was flowing too freely to people who really weren't qualified and shouldn't have had access to that much credit. The argument goes, it wasn't good for the economy. It wasn't good for them. And I just wonder if anybody's raising questions about this now, or is the argument that these lending institutions are just smarter about it and more thoughtful about it than they were during the boom years?

GLINTON: There is a downfall, and it's the mix. You need to have the proper mix of people. Like when credit dried up and no one below, you know, the absolute super prime credit, which is the top 40 percent of consumers, could get a car loan, that's leaving a lot of customers out there. And I think what is happening now, and it seems to be evident, is that the car makers, the lenders, are being smarter. They're being more proactive about how they deal with consumers.

And it looks as if consumers are being more responsible with their own choices when it comes to their auto loans. We're in a new world and I think that both the companies and the consumers on the both sides are being more responsible than they were about 10 years ago.

MARTIN: NPR's Sonari Glinton covers the auto industry. He joined us from member station WUOM in Ann Arbor, Michigan. Sonari, thanks so much for speaking with us.

GLINTON: Thank you. It's good to be here. Transcript provided by NPR, Copyright NPR.