Resurgent Sales Largely Driven By Subprime Loans
The good times are back for the auto industry, as sales have surged across all major car brands in the past two years. But the booming industry may not be heeding the lessons of the 2008 financial collapse and recession. A report in the Washington Free Beacon earlier this year noted that nearly 90% of loans issued by General Motors Financial were subprime--meaning they went to higher risk borrowers with lower credit scores. Those subprime loans were what led to the housing market collapse that sparked the Great Recession of '08. Recently, the president of General Motors Canada warned about the same thing happening in the auto industry if the current trend continues.
KTRH Car Pro Jerry Reynolds agrees that subprime loans are one of the main factors helping to drive the boom in auto sales right now. "They're taking some high-risk loans, charging high interest rates, seeing how they perform, and then after a period of time selling those off (to banks) at a discount," he tells KTRH. "And it is a good way to move cars as long as the economy is in a growth mode and continuing on an upward trend." However, if the economy suddenly heads south, could the industry absorb the blow? Reynolds thinks so. He says today's subprime loans are different than those of five years ago in that most now require money down. "People with an under 650 credit score right now can get a car, but it takes some money to do it, so I don't think we're nearly as at risk as we were in '08."
If you happen to be one of those people with weak credit, Reynolds recommends finding a loan before you head out to shop for a car. "It's always better to know what you can get out there on the market," he explains. "If you have a bank or credit union that you're affiliated with, talk to them first and then go see a good dealer." Another recommendation from the Car Pro--have some cash for a down payment, or at least enough to cover some of the extra costs and fees. "I always tell people if you can't put (cash for) tax, title and license down, then wait until you can before you buy," he says.
Listen to KTRH Car Pro Jerry Reynolds Saturdays from 11am to 2pm on Newsradio 740 KTRH