American Car Buyers: Poor Credit Risk?

Here's an interesting snippet from the current edition of Business Week (page 14, August 20&27, 2007):

ANOTHER HEADACHE FOR DETROIT

Buyers of Saturn Vehicles beware. If the authors of a new study have their way, banks may one day charge you a higher interest rate on your new car loans. Among the findings in the researchers' sample of almost 7,000 loans from a single bank: Although not the worst delinquents, Saturn buyers are 22 times more likely to default on their [car] loans than Toyota buyers are...

[snip]

The research, in a forthcoming book called 'Household Credit Usage,' published by Palgrave Macmillan, shows that default probability isn't only a function of credit history. Brent Ambrose, lead author of the book and the study, says loans secured for European cars are 50% less likely to go into default than loans for American cars. And owners of Japanese cars are 56% less likely to stop paying.

[note: the study was done from January 1998- March 2003, during which times domestic automakers were doing a lot of 0% down financing deals]

Ambrose argues that loans for American cars "should have significantly higher interest rates to compensate for higher default risk." And to balance the higher risk, car makers, he says, "...should raise prices."

[that would mean that buyers paying cash would be subsidizing borrowers with poor credit]

The last thing Detroit needs is for its best customers to have to pay a premium to buy American.

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Interesting...a Toyota buyer is 56% less likely to default on her car loan than a Ford buyer? Wondering how much more difficult it is for a given buyer at a given time to secure a loan from Toyota vs. one from Ford?

Wondering if this reflects more on the lending practices of manufacturers or the financial savvy of customers...?