The (very) bullish case for the American auto market

June 5, 2012, 3:45 PM UTC

FORTUNE — The writhing agony of American automakers has given way to something rather more pleasant: ecstasy. After a dismal few years, U.S. car companies are thriving again, turning profits and selling cars. Now, they have an additional bit of encouragement: easier credit.

Experian, the Dublin-based financial services firm, says more applications for auto loans are being approved by banks, auto company finance subsidiaries and credit unions. The confidence of U.S. lenders is being rewarded by fewer delinquencies, suggesting a virtuous cycle that may lead to a further easing of credit.

The increased volume of loans can in part be explained by more applications as well as by lenders willing to increase lending to customers with lower credit scores. Last week, automakers reported 25.7% stronger retail sales in May, reflecting a seasonally adjusted annual rate of 13.8 million vehicles, compared with 11.7 million vehicles a year ago.

MORE: The truth about GM’s marketing moves

Anecdotally, expansion of credit can be explained both factors says Melinda Zabritski, director of automotive credit with Eperian. “We’re not back to pre-recession levels, but the volume is growing.” The average loan for a new car costs about 4.5%; the average loan for a used car is 9%.

The leasing sector also is gaining, approaching levels prior to the financial crisis of 2008 and 2009. Fluctuating vehicle values and less availability of credit had led to fewer new lease commitments. The proportion of leases to new vehicle financing, which was above 26% in the first quarter of 2008, fell to 19.6% the following year. That figure has recovered to about 24.4% in the first quarter of 2012.

The top leasing companies in the U.S. market are the financial arms of Honda (HMC) and Toyota (TM), which together account for about 28% of all leases. Mercedes-Benz remains the brand that leases the biggest proportion of its cars, about three-quarters.

MORE: Cadillac’s Hail Mary, dressed in a tux

Of course, not all the signs are positive. Resurgent automakers are being forced to compete again and offer bigger discounts to attract newly confident customers, hurting profitability. Asian carmakers, many of which were badly bruised by the March 2011 earthquake and tsunami in Japan, are regaining share of the U.S., led by Toyota. Toyota’s sales were up 87% in May. Overall, the Korean and Japanese makers have captured 46.1% of U.S. new-vehicle sales through May, up from 45.2% for the same period last year. By a small margin they now lead the Detroit three. Of European carmakers, Volkswagen AG leads the pack with its new U.S.-made Passat family sedan. chief economist Lacey Plache sounds a cautious note, citing the general ennui around the broader economic climate. “Consumers with jobs are still spending and income is still growing,” she said, “albeit at a modest pace. For auto sales, consumer willingness to spend is key and, as credit expands again, there is plenty of pent-up demand driving car shoppers back to market.”

Still, there is reason for automakers to be hopeful. Automotive credit is inherently less risk than, say, mortgages, which helped sink the economy in 2009. Zabritski says she recently polled 30 to 40 lenders on their view toward automotive credit. “They really tend to be on the optimistic side,” she said. “Delinquencies have been very, very low.”