Tag Archive | "Auto Finance"

Summer's Coming and Car Loans Won't Be Easy

The summer buying season is almost here. Will consumers find it easier to get a car loan? Detroit Free Press columnist Susan Tompor shares her perspective.

Credit is slightly looser than it was last year but not exactly flowing. Car dealers and others will tell you that many consumers will find getting a loan to be tricky. But the securities market for bonds backed by auto loans and leases has been gaining steam — which means more money becoming available — despite concerns in recent weeks about global economic growth.

Jeff Schuster, executive director of global automotive forecasting at J.D. Power and Associates in Troy, said car and truck sales for 2010 will be greatly influenced by how much credit loosens up. He said the situation is improving but has a ways to go.

“It may be easier to get a loan maybe later in the year than it is now,” Schuster said.

Consumers who plan to try to borrow in the near future need to make sure they are paying their bills on time and should aim now to pay off credit cards, especially if they’re carrying a large amount of debt in relation to their line of credit, said Maxine Sweet, vice president of public education for Experian.

Experian data show the average credit score in metro Detroit this year is 745, down from 755 in 2007 and slightly lower than the U.S. average of 749 on Experian’s VantageScore range of 501-990.

That means a score in the 700 range is like a C grade. If your score is above 900, your credit history is an A — and you can pretty much write your own ticket for easier credit and lower-priced loans.

In general, if you have $10,000 in available credit card lines, it is better for your credit score if you owe $3,000 rather than $4,000 or more.

On the plus side: Consumer loan delinquencies did fall in eight of 11 loan categories in the fourth quarter of 2009, marking the second quarter in a row of broad-based improvement, according to the American Bankers Association’s Consumer Credit Delinquency Bulletin.

But on the downside: Home equity loan delinquencies hit another record.

And if you think the housing crisis didn’t hurt car sales, think again.

“Without housing equity to tap, and foreclosures leaving consumers even less creditworthy, it makes selling cars more difficult,” Swonk said.

J.D. Power is forecasting sales of 11.8 million cars and light trucks in 2010 vs. 10.4 million cars and light trucks sold in 2009.

Consumers should be able to buy cars, Schuster said, because leasing is more available than it was a year ago, the economy has gradually improved and drivers may see better trade-in numbers now.

After holding onto their cars longer, Schuster noted that many consumers may not owe as much on their cars as they did a year ago. And consumers may not be as upside-down on car loans — meaning they won’t owe far more than the old car is worth.

Lately, the average trade-in car or truck is 6 years old, according to J.D. Power, compared with 5.4 years in the spring of 2007. Last August — during cash-for-clunkers — the average trade-in vehicle was 10 years old.

But then there’s that credit issue.

“The primary hurdle is credit,” Swonk said.

Even now, Swonk said, “auto buying is heavily concentrated in the highest-income households, buying more loaded vehicles, as they are the only ones who can qualify for current lease and credit deals, or can pay cash.”

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Why It's Easier (for Drivers with Good Credit) to Buy a Car Now

Car dealers, auto finance companies and credit market analysts are seeing a decided spring thaw in the auto finance market—especially for drivers with good credit, reported The Wall Street Journal.

Right now, GMAC Financial Services is offering zero percent interest loans and discounted leases to help GM and Chrysler boost sluggish sales. GMAC is offering a $499 a month, 39-month lease on the Cadillac CTS with $1,000 down—or nothing down for customers already driving vehicles leased from GM. (Beware: The penalty for driving more than 39,000 miles is $0.20 a mile.)

Honda Motor Co. is offering aggressive lease deals—pushing leasing to more than half of current deals. Among the Honda offers is a $0 down, 36-month lease on a 2010 Honda Civic LX with payments of $159 a month. Luxury car makers are pushing to accelerate the rebound in demand. BMW dealers are promoting $2,500 discounts on certain models as part of a “spring drive” event. Lexus dealers are promoting a $359 a month, 36-month lease deal for the Lexus IS, with the first month’s payment waived. (Fine print on one dealer’s website cautions the deal is for people with “top tier” credit.)

Data compiled by Informa Research Services Inc. and J.D. Power and Associates suggest the thaw is real and widespread. For example, Informa’s analysis of the rates lenders are offering to consumers in different credit tiers shows that between January 2009 and March 2010, the average rate offered to consumers with top-drawer credit—FICO scores in the range of 720 to 850—dropped to about 5.8 percent from 7.1 percent.

The rates for customers with middle-tier FICO scores in a range of 660-689 were being offered loans at an average rate of about 9.4% in early March, down from an average of 10.2 percent in January 2009.

But people whose credit scores fell below the 660 level were offered loans earlier in March at average interest rates of about 13.2 percent—up from about 12.9 percent in January 2009.

After the late-2008 financial-market meltdown, getting customers with credit issues into a new car loan was hard work. Customers needed to put down a third of the car’s price or get co-signers if their credit scores weren’t top notch, Mr. Gorham says. Now, even the consumer with a weaker credit score might get the loan, as opposed to being denied, dealers say.

The recovery in the auto credit market is the result of various factors, analysts say. A program launched by the Federal Reserve to jump start demand for securities backed by car loans worked, and slowly allowed auto makers’ finance companies to once again raise capital for new loans by selling off their old ones. That program recently expired, amid a consensus that it was no longer needed. It helped that even in hard times, consumers tend to pay their car loans.

J.D. Power and Associates analyzed its credit data, along with data from TransUnion LLC and Fair Isaac Corp., and found that the share of subprime auto loans financed by auto finance companies has expanded to 51 percent in early March from 40 percent in January 2009.

Informa puts the difference between the average loan rate offered to someone with a FICO score in the 620-659 band and someone in the 660-689 band at nearly 4 percentage points. That’s about $2,300 over the life of a four-year, $25,000 car loan.

What this means is that now more than ever, consumers shopping for auto leases and loans need to know what their credit scores are—and if they can, take steps to repair or bolster their credit if the numbers are low. Consumers also have more options when shopping for the best rates from credit unions or banks, as well as the dealer finance departments and the auto makers’ lenders.

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GMAC Names New CEO; Michael A. Carpenter Will Lead Next Phase Of Renewal

NEW YORK – The Board of Directors of GMAC Financial Services (GMAC) today named Michael A. Carpenter, a board member with extensive financial services experience, chief executive officer. The board has given Carpenter the responsibility to accelerate the strategic and operational changes necessary to focus GMAC on its core auto finance and related businesses.

Franklin W. Hobbs, GMAC chairman, said, “Mike Carpenter is a world-class CEO, and the board has great confidence that he is the right leader for GMAC at this pivotal moment. GMAC will benefit from Mike’s broad and deep experience in banking, capital markets, turnarounds and corporate strategy. In addition, as a GMAC board member, he has first-hand knowledge of GMAC and the challenges and opportunities the company faces in its drive to return to sustained profitability and to repay taxpayers.”

Carpenter succeeds Alvaro de Molina, who has resigned as CEO and a director. Carpenter, 62, has served on the GMAC board since May 2009. His previous experience includes CEO positions at Citigroup’s Global Corporate & Investment Bank, Salomon Smith Barney, Travelers Life & Annuity and Kidder Peabody. During his 35-year career, Carpenter has also held senior positions at GE Capital, General Electric and Boston Consulting Group.

“I am honored by the opportunity to lead GMAC at this critical juncture,” Carpenter said, pledging to work with a sense of urgency to make GMAC the premier provider of auto finance and related services for both dealers and consumers across the country.

Carpenter noted that the challenges facing GMAC are substantial, but he expressed confidence that the company and its leadership have the resolve, talent and vision to restore its fiscal health and build on its unique franchise.

“A renewed GMAC is crucial to business and public sector efforts to bolster the U.S. auto industry, and we have a special obligation to the public to do everything we can to ensure GMAC succeeds,” Carpenter said. His mission, he noted, includes operating GMAC “at the rigorous standards required of a bank holding company, resolving the difficult issues we face with the mortgage business, and repaying in full the funds the U.S. government has invested in GMAC.”

The board of GMAC has requested that the U.S. Department of the Treasury postpone its decision on the planned follow-on investment of Troubled Asset Relief Program funds in GMAC until Carpenter and the management of GMAC have assessed the current situation and can advise the board and Treasury regarding the appropriate amount and form of such funding.

Carpenter has resigned from the board of CIT Group in order to devote his full attention to his new role at GMAC.

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