Automotive Finance
Dealers Expect an Increase in
Non-Prime Buyers
Dealers are placing greater importance on their non-prime business to help offset any decrease in their prime business as the economy remains slow to recover. They are now looking to independent financers, who specialize mainly in used-vehicle financing and non-prime lending.
According to the J.D. Power and Associates 2004 Dealer Financing Satisfaction Study,SM 57% of dealers expect to see an increase in the importance of non-prime retail credit to their business—this is the highest percentage since 1997.
Several factors contribute to the expected increase in the importance of non-prime buyers, some of which include: the sluggish economy and slow job recovery—creating a climate for worsened credit ratings and riskier buyers—and the flat used-vehicle market.
Another major factor is the trend toward longer loan maturities (often upward of 60 months), which leaves current buyers owing more than their car is worth. Dealers are also questioning the future effectiveness of customer incentives since riskier customers often do not qualify.
With these trends swinging the market toward an increase in non-prime buyers, dealers are looking more closely at independent providers who provide the majority of non-prime retail credit. While dealer satisfaction with independent providers remains low, there was an increase of six percentage points since last year. Captives, credit unions, and banks, respectively, still outperform independent providers.
