NADA Rebuts Misguided New York Times Editorial on Auto Lending
The Times’ editorial, “When a Car Loan Means Bankruptcy,” is an unfair and unfounded attempt to portray the auto lending industry as a hotbed of deceptive practices and a harbinger of insolvency that could lead to another recession. Nothing could be further from the truth. Auto loan defaults are at historic lows (less than 1 percent in June).
Franchised new-car dealers deliver widely available and low-priced credit to a broad array of consumers, including those most in need of a car to start their way up the economic ladder.
Before demonizing such a valuable and consumer-friendly system, let’s check the facts:
- During the Great Recession, auto loans were one of the best performing asset classes. Auto loan default rates never went higher than 2.74 percent, versus first mortgage default rates that hit 5.67 percent.
- Extending credit for the purchase of a car – which rapidly depreciates in value – is not profitable unless it’s repaid, so putting consumers in car loans they can’t afford is not a sustainable business model.
- New-car dealerships provide a valuable financing option to consumers. Credit offered by new-car dealers routinely carries lower interest rates than credit offered by other lenders for similar borrowers.
- It’s illegal to misrepresent a borrower’s credit background and a lender who does so is liable for any default.
Enforcement of existing laws against a small minority of bad players is in everyone’s interest, but smearing an entire industry for the misdeeds of a few is just plain wrong.
Peter Welch is president of the National Automobile Dealers Association.