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New Car Sales Rise, Auto Loans Go Bad

New-car sales rose, although at a slower pace, by 8.5 percent year-on-year according to the latest data from automotive statistical data source Autodata Corporation. This may be a good thing, but more auto loans seem to be going bad.

John Rosevear, a contributor in a financial-services company The Motley Fool, observed that “some of the facts are disturbing” in the latest Experian Automotive report. He noted that both auto loan delinquencies and repossessions are on the rise.

Experian reported that 30-day and 60-day delinquencies increased 1.3 percent and 12.4 percent, respectively in the first quarter of 2013. Repossession rose by nearly 17 percent year-on-year.

However, despite the increases, Experian sees the figures as still lower than the rates in the recession years. Experian senior of automotive credit Melinda Zabritski said, “When you compare the current findings with previous years, they are still lower than the recession-level rates.”

Rosevear said, “The current increases are kind of an artifact of the recession.” He said that subprime lending went so low then and now it’s back. “That means more shaky borrowers are back in the market.”

As more auto loans turn awry for most borrowers, Rosevear sees the phenomenon as beneficial to automakers. With the growing subprime market, there is more opportunity for carmakers and dealers to make sales—just like during the recession years when financing was lucrative, giving automakers and dealers more sales in addition to their auto sales.

Rosevear said that there are automakers like Chrysler and Hyundai that are willing to venture in the subprime market.

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