Subprime tarnish fades, finally

Jim Henry is a special correspondent for Automotive News

Dealers have complained for a couple of years now about how long it's taking for subprime auto lending to bounce back.

Sure, the U.S. economy isn't growing as fast as we'd all like. But really, what's taking so long?

How about tarnish by association?

Part of the problem is that ever since the subprime-mortgage collapse, some investors can't bring themselves to buy anything with the word "subprime" in it, said John Di Paolo, principal of structured finance research at Prudential Investments. Di Paolo spoke last week at a conference sponsored by Standard & Poor's Ratings Services.

"Some investors, I don't think, will ever come back to subprime," he said. That's despite the fact that subprime auto loans performed pretty well through the recession and performed a much better than mortgages.

"People don't differentiate," he said.

While some investors have been turned off forever, the good news for dealerships is that many investors are now pouring money into subprime lenders, which the lenders are using to make new loans and grow again. Subprime accounted for 41.5 percent of U.S. loan and lease originations in the fourth quarter last year, up from 38.4 percent the year before, Experian Automotive says.

All indications are that the first quarter this year followed the same pattern, with an increase in subprime share.

Finally, subprime loans are starting to catch up.

You can reach Jim Henry at autonews@crain.com.

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