Automobile lending is downshifting along with the entire auto industry.

Ford sales fell 3.9 percent in January, while Toyota and Honda dipped 2.3 percent and Chrysler sales tumbled 12.1 percent according to The Truth About Cars, a Web site providing automotive reviews and industry-related editorials.

U.S. production of vehicles slipped to 892,219 in February from 908,058 a year ago, according to Wardsauto.com as makers face a soft economy and slipping sales. Car manufacturers don't expect the market to take a U-turn anytime soon, and neither do lenders.

"The whole auto industry is slower," said Michele Dean, senior vice president of lending for Bethpage Federal Credit Union. "We've been hit hard due to the auto industry in general."

A ripple effect from the subprime market mess, high fuel prices and a sputtering economy are causing buyers to back off of or delay purchasing cars, driving down demand for auto loans.

"We're seeing overall, because of the economy, people are struggling to make their payments on mortgages, which is spilling over," said Dean.

Bethpage Federal's portfolio of auto loans, including new and used vehicles, is flat at about 12 percent of their overall lending. The rate, Dean said, had been growing steadily until two years ago.

"The auto industry is a challenge," Dean said. "But we love auto loans. We want to make auto loans."

David Jacobson, president of Hauppauge-based Groovecar ­ an auto loan processor for credit unions ­ said as standards tighten, borrowers with bad credit who would have gotten loans a few years ago, may be turned down.

"They would pay a little bit of a higher rate, but they'd get the loan," Jacobson said. "Lenders today are not so fast to give people with [a bad] score a loan at all."

Some companies providing services related to automobile loans also are taking a beating from the market downturn. Lake Success-based DealerTrack Holdings, which provides software for auto loans, blamed tightening credit standards for its declining income.

Chief Executive Mark O'Neill said a "challenging" economic environment is affecting both the industry and his firm, which saw net income for the last three months of 2007 slip to $4.1 million from $5.7 million a year ago.

JP Morgan Securities analyst David M. Scharf downgraded the company to "Market Perform" from "Strong Buy." While auto loan default rates haven't soared, they're being watched closely by lenders. Dean said Bethpage's auto loan default rate has remained flat. But because the market for used vehicles has softened, the credit union gets less money for vehicles when borrowers default. "The dollar losses are greater, but the volume has not increased," Dean said.

There is some evidence that the market may be ready to take a detour. Federal interest rate cuts are translating into lower loan rates for automobile loans, which could pump a little financial fuel into this segment of the economy. Bethpage this month cut their best lending rate for new and used cars to 4.99 percent from about 5.4 percent for loans up to 60 months.

But rather than hope for more traffic, the lending slowdown is prompting more lenders to offer loans for automobile leases. Jacobson said, "Because of the competitiveness in the market, we decided to introduce a lease product." Groovecar's auto lending rose each month from December to February over the prior year due to leases, he said.

"People want low payments, but they don't have a lot of cash," he said. "Leasing is perfect for that." Jacobson also said loans for leases typically require borrowers to have better credit than if they were to buy. Leasing may be the perfect fix to keep auto lenders from skidding, but not everybody offers that financing.

"We're evaluating it as a possibility," Dean said. "The question is can you compete with the dealers?"

by Claude Solnik