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Saturn buyers 22
times more likely to default on loan than Toyota buyers
Date: Aug 12, 2007
Date: Aug 20, 2007
the study this article looks at is an example of twisting statistics to
push an agenda.
Saturn buyers 22 times more likely to default on loan than Toyota buyers
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
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 loans than Toyota
buyers are. In fact, owners of American cars generally are more likely
to default than owners of European or Japanese cars.
The research, in a forthcoming book, 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.
The study looked at auto loans made from January, 1998, to March,
2003--a period when Detroit cranked up its 0% financing deals and
offered six- and seven-year paydowns. Foreign automakers and their
dealers did far less of this type of lending, which attracts borrowers
with poor credit.
Ambrose, a professor at Penn State's Smeal College of Business, argues
that loans for American cars "should have significantly higher interest
rates to compensate for higher default risk." And to balance the higher
risk, carmakers, he says, should raise prices.
That would mean that buyers paying cash would be subsidizing borrowers
with poor credit. And the last thing Detroit needs is for its best
customers to have to pay a premium to buy American.