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Sub-prime lending returns to auto financing market

Dec 22, 2011 Randy Mosteller

While it's true that auto sales have spiked in recent months, the reasons for the uptick may not be as obvious. Consumer sentiment is certainly behind some of the improvement, but the return of sub-prime lending in the auto industry may also be credited. According to CNW Research, approvals of auto loans to buyers with sub-prime credit ratings have climbed by more than 15 percent this month over November. Meanwhile, loans to individuals with solid credit ratings are up just 1.36 percent. This year, approvals of sub-prime auto loans are up 53.9 percent. Many analysts are worried about the fact that sub-prime lending in the mortgage industry preceded the collapse of the housing market in 2008. However, others view the return of sub-prime lending as a negligible byproduct of an improving economy. "Easier credit, greater liquidity and the improving economy are all driving the surge in sub-prime borrowing," writes CNBC contributor Phil LeBeau. "Banks and the captive finance operations of automakers are seeing the biggest increase in their portfolios. And more importantly, most in the industry see this trend continuing."