With Auto Lenders Tightening Credit----The Car Business Is Taking Another Hit

Implications: Just as delinquencies and defaults are rising in the housing sector, problems are also mounting for auto lenders as consumers look to get out of their costly car leases or struggle to make their car-loan payments.

Analysis: Rising inflation, high gas prices and a tightening home mortgage market have driven up car-loan delinquencies. The number of Americans who are more than 60 days late on their car-loan payments rose to a 10 year high in January.

The problem is so acute it could weigh on the U.S. economy, according to Lawrence B. Lindsey, former director of the National Economic Council, and now CEO of the Lindsey Group. He said last week "the next shoe to drop" in the credit crunch could be the car-loan sector.

How serious is it? "We're talking about a half-trillion-dollar industry, and if you take away a quarter of it, that's one point of GDP," he said. "Washington is focused on the tax-rebate checks they're about to send out, and that's great because a $1,200 check can be a down payment on a car, but if you can't borrow the other $25,000 to buy the car, you can't buy it, period--that's why the credit channel is the most important thing to focus on."

Carol Kaplan, spokeswoman for the American Bankers Association, a trade group for the banking industry, notes that auto loans make up half of all consumers loans, excluding mortgages.

Commenting on the drop in U.S. auto sales in March, Kaplan said "This certainly tells us what's going on in the economy. We can say without question that auto loan delinquencies are rising and that we expect them to continue to rise."

On Tuesday, automakers reported double-digit U.S. sales declines for March as demand for SUV's and trucks plummeted. GM said its U.S. sales fell 19%, while Ford's dropped 14%. Chrysler saw a drop of 19%Sales at Toyota, including the Scion and Lexus brands, declined 10%.