Study: Auto Loans For American-Made Cars More Likely To Default

Nov.18, 2008 in Market Outlook

Insurers have long recognized that automobile makes and models appeal to different clienteles, and that these clienteles have heterogeneous risk profiles and accident rates,” they write. “Our results provide evidence that the type of automobile a consumer purchases reveals information about the consumer’s propensity to prepay or default on the loan used to finance that purchase. Since the information on the type of automobile purchased is available to the lender at the point of origination … lenders could profitably pursue risk-based pricing based on the type of car the borrower purchases.”

The findings in the study suggest that loans on “American cars should have significantly higher interest rates to compensate for higher default risk.” To balance for this higher risk, American automobile manufacturers must price their products higher, which implies that “cash purchasers of American cars are, in effect, subsidizing the poor credit performance of buyers who finance the purchase of American cars.”

http://www.smeal.psu.edu/news/latest-news/aug07/ambrose.html

NOT ONLY IS BUILDING AMERICAN CARS GOING TO COST ME MONEY (BAILOUT) BUT BUYING FOREIGN CARS COSTS ME BECAUSE I HAVE TO SUBSIDIZE “BUY AMERICAN” XENOPHOBES POOR CREDIT HABITS.

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