BANDON, Ore. — Auto lenders are still apparently remaining very cautious in the quantity of subprime applications they approve and book.

And while CNW Research points to this market as extremely profitable as the economy improves, the company also noted it's going to be very difficult to rebound to higher vehicle sales, such as 15 million, without lenders' return to willingness to serve these credit-challenged consumers.

"A growing percentage of new-car sales are going to prime credit customers as banks and other financial institutions look for safer bets," Art Spinella, of CNW Research, explained.

"In the preliminary November data, 85.7 percent of those who purchased a car had prime credit — the highest rate since December of '08 when it was 85.9 percent. And while near-prime held within a narrow band between 10 to 12 percent of buyers, the subprime shopper has seen his chances of getting a loan shrink dramatically," he continued.

In July 2006, about 16 percent of all new-car sales went to customers with subprime credit. However, in November of this year, this statistic comes in at about 3 percent after hitting a 2009 high of 8.4 percent in April.

"Why are subprime shoppers taking it on the chin? Simple answer: Financial institutions, one and all, are trying to scrub their books of anything or anyone who could constitute a bad risk," Spinella indicated.

"And part of the decline can be traced to consumer sentiment and business psyche. In the opening months of 2009, few pundits expected the recession to be quite so sticky, deep or long. Most were talking about the third or fourth quarter being the ‘turnaround,'" he added.

As the year passed, however, Spinella suggested that none of the plans Congress or the Obama Administration set forth "seemed to be bearing fruit."

"All indicators seemed to be revealing an even longer economic malaise than anticipated. More banks were shuttered. The Administration's ‘Pay Czar' slashed executive pay signaling anyone who received bailout cash would be subject to compensation scrutiny. One result: Ultra conservative approaches to who would and would not get a loan. In the auto industry, that meant subprime shoppers were an easy target."

And while Spinella apparently could see where the auto lenders are coming from, he also suggested that auto lenders should not discount subprime paper as it can be very profitable.

"There is a definite and profitable market for subprime paper," he highlighted. "Just don't expect major banks to pay it much heed anytime soon. They have their own problems. Over the coming year, however, expect subprime to once again show some significant growth based on an incrementally rebounding economy.

"Until then, however, consider that subprime once represented nearly 2 million new-car sales. Under the new rules of engagement, without subprime, the industry will have an extraordinarily difficult time hitting 15 million, let alone, 16 million units (in sales)," he concluded.

More information on CNW can be found at www.cnwmr.com.