"The Logical Thing"

Auto interest rates will soon be boosted. For 20 years, interest rates stayed at an average 6%. Last year tighter money nudged up the average to 6 1/2%. Now, with banks charging a record new 4 1/2% prime rate, finance companies are paying more than ever for the money they lend to dealers, and are getting ready to raise rates. Said President Arthur O. Dietz of Commercial Investment Trust: "We've been discussing it, though I can give no time or date when we might raise the rates." With money costing more, added President Charles Stradella of General Motors Acceptance Corp., "it's the logical thing to do."

When they do make up their minds, the big finance companies are expected to boost rates an average one-half of 1%, thus hitting the legal 7% ceiling in some states. But the real squeeze on borrowing will not be from the added charge, which would amount only to about $45 on a $3,000 car for a three-year loan. What will hurt many car buyers more is the far sharper checking on borrowers to avoid marginal risks. Many buyers will be lucky to get financing at all. Said one Manhattan auto salesman: "So many people are applying for loans that lenders can afford to pick and choose only the solid citizens. We have to go from one finance company to another with a new application. It's not only tight money. It's because lenders won't stand any more for repossessions and bad debts."

Such policies already have served to check installment debt. Auto debt rose only 5% (to a record $15.1 billion) in the first six months of 1957, far less than the 22% increase in the like period of easy-credit 1955. For the first time in years, the more cautious finance companies were losing business to banks, which reported a bigger gain in auto loans than in any other form of bank installment credit. While the finance companies' share of the market dropped from 51% to 49%, the banks' rose from 39% to 41%.

But the bankers have little intention of making it any easier for borrowers. Last week the American Bankers Association reported higher repossession losses and slower payments in many areas, cautioned against any stretch-out in loan periods, and urged banks to maintain "an aggressive and alert collective policy." Said A.B.A.: "Until liquidation pains and cleanup problems are in better focus in the automobile industry, it would be prudent to watch this area closely."

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