Looser credit boosts auto sales as bar lowered for buyers

Tuesday, June 01, 2010

By Doron Levin, Bloomberg News

Jody Bowman said she didn't expect to be able to buy a new car or even a used one. She owed $8,900 on a 2003 Chevrolet minivan, carried a $5,000 balance on her credit card and didn't have enough cash for a vehicle.

Then in early May, the 38-year-old stay-at-home mom got a $15,500 loan and drove away from a dealership in Clinton, Iowa, with a 2005 Toyota Sienna minivan.

Easier credit for buyers is fueling a recovery in U.S. auto sales that are on pace for the fastest annual gain in 26 years. The market for bonds backed by auto loans is expanding, freeing up lenders' capital for customers who would've
been rejected last year.

"We had such limited access to funding last summer, we almost were trying not to make loans," said Dan Berce, chief executive officer of Fort Worth, Texas-based lender Ameri­Credit Corp. "Early this year, we looked
at how loans were performing in Texas, California and much of the Northeast and
liked what we saw, so we decided to lower the bar."

About $22.9 billion in bonds backed by auto loans, borrowings for dealer inventory and related debt were issued through April, according to data compiled by Bloomberg. That's a 67 percent increase from $13.7 billion a year
earlier.

AmeriCredit, specializing in subprime lending, sold $200 million of bonds backed by car loans on March 31, its first sale without help from the Federal Reserve's Term Asset-Backed Securities Loan Facility since November 2008. The
company sold an additional $600 million of bonds on May 13.

AmeriCredit's auto-loan acceptance rate ran as low as 20 percent a year ago, and today is about 35 percent, Mr. Berce said. The company originated 34,800 new and used-vehicle loans in the U.S. in the first quarter, up from 12,400 a
year earlier.

U.S. auto sales through April have risen 17 percent from the same period a year earlier, according to data compiled by Bloomberg. If the trend holds for the rest of the year, it would be the biggest annual increase since a 17
percent gain in 1984, according to AutoData Corp. a research firm based in
Woodcliff Lake, N.J.

The improvement has helped sellers extend financing to more car buyers, said Lee Mitchell, vice president of financial services for Group 1 Automotive Inc., a chain of dealerships based in Houston.

Finance companies belonging to automakers accounted for about 34 percent of vehicle loans in the first quarter, according to Art Spinella, president of consulting firm CNW Marketing Research in Bandon, Ore. Banks provided about 34
percent of the loans, followed by credit unions and finance companies, each
with about 14 percent, he said.

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