Much talk this week was centered on the substantial drop in consumer credit outstanding in July, and indeed the decline at an annualized rate of 10.5% was steep.
But auto lending should not be lumped into that dire assessment. In fact, auto loan originations grew 2.3% in the month of July, according to the Federal Reserve. And that growth is not too shabby considering the massive contraction in overall consumer credit.
Did Cash for Clunkers have something to do with it? Sure, but growth is growth, and when you couple the portfolio expansion with new data showing that auto credit performance has held up nicely through the credit crisis (Standard & Poor’s will publicize the data at next week’s Auto Finance Summit), there is reason to look at the sector with a certain degree of pride.
In addition to David May’s comments, I believe that dealer fraud is very much alive and well in today’s lending world. To mitigate that exposure, I believe the future of auto finance will be more in the form of direct lending to the consumer as opposed to indirect – taking dealerships out of the lending loop, therefore, decreasing fraud exposure. By doing this, lenders will be able to execute their due diligence on credit approval in an effort to to hammer out possible fraud that would occur among the consumer in the form of identity theft.