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Credit Requirements Ease Helping Recovery of Auto Industry

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On: Mon, Oct 11, 2010 at 11:35AM | By: Sherry Christiansen


Credit Requirements Ease Helping Recovery of Auto Industry

The news for the auto industry just keeps getting better and better; now auto buyers are having an easier time getting credit which may be the turning point in the industry’s decline. Last month auto sales in the U.S. were the highest since the government launched the “Cash For Clunkers” program in the fall of 2009.

In July, federal loan programs started to loosen up standards for auto lending which “rejuvenated the market for securitized auto debt", said Ellen Hughes-Cromwick, Ford's chief economist. Research data showed that along with credit terms easing up, auto sales numbers have also increased.

“Credit has begun to ease for automotive in general,” Hughes-Cromwick said in a telephone interview. “We should see consumer credit begin to evidence some recovery, but it is a slow go. I don't think anybody is baking in some sizable cyclical uplift in the next 12 to 18 months.”

Group 1 Automotive Inc.,  and CarMax Inc. both stated that credit is not as much of an obstacle but that it did add to the slow U.S. auto sales last year, the lowest, in fact, in over 2 decades at only 10.4 million units sold.

“Credit is certainly available to meet the consumer's needs,” Peter DeLong, a vice president at Houston-based Group 1 Automotive, said in a telephone interview. “For current sales levels to increase, we need additional showroom traffic.”

The sale of vehicles to subprime credit buyers (with FICO scores below 619) also rose; in fact, the increase of over 9% was the highest since February of 2008.

“Some significant upside” to sales as credit “loosens up,” Don Johnson, GM's vice president of U.S. sales, told analysts and reporters.

“The credit freeze has hampered sales in the industry,” Johnson said. “That's one of the reasons why it was so important for us to put this relationship together with AmeriCredit.” It began operating as General Motors Financial Co. effective Oct. 1 and today Standard & Poor's Ratings Services put it on credit watch with “positive implications.”

The average interest rate for new Ford car buyers was 5.23% in September and 5.07% in August according to Edmunds.com. Average rates for GM buyers decreased from 5.35% to 5.23%.

“The slight increase in rates suggests that credit is loosening a touch, since less-qualified buyers are getting loans and bringing up the average,” Ivan Drury, an Edmunds analyst.




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