TORONTO - Easing credit conditions are making it easier for consumers to buy new vehicles and should boost auto sales in the second half of the year, according to a new report by Scotia Economics.
The bank's global auto report, released Thursday, says Canadian auto loan approvals have increased to the highest level since April 2008. Study author Carlos Gomes said this provides evidence that credit markets are starting to thaw after freezing up in response to the financial crisis in late 2008.
This has been aided by Ottawa's move to buy up to $12 billion in securities backed in part by loans and leases on vehicles, which was launched last month, Gomes said.
"Loan approval rates have started to pick up in Canada, while securitization activity has begun to improve with the federal government's $12-billion securitization plan launched in early May," Gomes stated.
He said the withdrawal of some major lenders from the auto-loan business over the past year had dampened credit availability, although the Bank of Canada indicates auto loans at chartered banks in Canada have been readily available.
Chrysler's lending arm was forced to wind down due to a lack of capital after Chrysler LLC filed for bankruptcy protection in the U.S. in April.
GMAC, General Motors' lending branch, took over some of Chrysler Financial's business, but most automakers' financing arms were forced to increase the credit score necessary to get a lease to protect themselves from defaults.
This is turn created a vicious cycle, making it harder for consumers to lease new vehicles.
But there are signs that lenders are making it easier for consumers to get auto loans, including an increase in the loan-to-value ratio for new auto loans in the United States to 89.1 per cent, the highest level since August 2008.
"The increase in the loan-to-value ratio indicates buyers need a smaller down payment to purchase a new a vehicle, and points to an easing in credit conditions," Gomes said.
Additionally, overall household credit, of which auto loans account for about 20 per cent, is growing in Canada. This reverses a five per cent drop in overall auto credit seen in 2008.
