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Subprime Mess Hits Car and Truck Sales

As credit dries up, dealers see inventories growing

By Joe Benton
ConsumerAffairs.com

August 27, 2007

Consumers with lower credit scores now face increased difficulty finding affordable financing as loan delinquencies rise among higher-risk customers.

The National Automobile Dealers Association (NADA) has cut back 2007 sales forecasts. In February, the NADA predicted that U.S. sales of new cars and light trucks this year would roughly equal the 2006 mark of 16.5 million.

Now the association predicts 2007 sales could dip as low as 16.1 million units.

Some lenders are raising interest rates on vehicle loans, costing consumers hundreds of dollars in increased payments. A four-year, $20,000 loan at 7 percent costs the buyer about $880 more than the same loan at 5 percent.

Dealers in markets where subprime mortgage problems are the most severe also report lagging car and truck sales with many consumers delaying vehicle purchases or buying lower-priced cars and trucks with fewer options and aftermarket products to pare their monthly payments.

The mortgage crunch along with the new federal bankruptcy that make it harder for individuals to file for bankruptcy have caused delinquency rates on vehicle loans to spike.

According to industry reports, 11.6 percent of vehicle loans were delinquent last year, up from 6.5 percent in 2005.

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