Dealer financing has returned to pre-recession levels for the first time since hitting rock bottom in 2009, according to Edmunds.com.
A main component of the rebound stems from a resurgence in the subprime marketplace. In 2Q12, subprime loans rose to 25% of all new auto loans from a low of 17.6% in 2Q09.
“Pent-up demand from consumers unable to obtain financing during the recession has not been fully released and will continue to contribute to auto sales growth as these consumers get access to credit,” said Edmunds.com Chief Economist Lacey Plache.
Plache expects the auto industry can continue to bank on credit expanding, which is “a key driver of auto sales growth during the recovery to date — to boost sales for the foreseeable future,” she said.
The industry took a hit when potential buyers were shut out following a 22% drop in dealer financing on new-car sales between 2007 and 2009. Edmunds.com implied that recovery began once financing from dealers returned to prime and subprime car buyers — and that this year could see overall sales reaching their highest point in five years.
But even with that potential good news, Plache errs on the side of caution.
“A return to the way things once were does not necessarily mean that all auto funding has fully recovered,” she said.
Edmunds.com found that a reason dealer-financed sales have improved is due to the fact that “cash” funding from non-dealer sources is on track to maintain its roughly 40% below pre-recession levels this year.
“A key reason for this is the weak housing market, which has prevented buyers from using home equity to fund new-car purchases,” Plache said, adding that she doesn’t expect that situation change anytime soon.