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Squeeze hits car loans; Local dealers say funds available for good credit
By Mike Spector
Wall Street Journal with Pantagraph staff
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The era of easy auto loans is skidding to a halt. Mortgages were among the first consumer products to be hit by the credit-market freeze. Now car loans and leases are drying up as dealers, auto-finance companies and other lenders are having trouble finding money to lend to car buyers.

The upshot: Those with less-than-stellar credit are getting shut out, and even some so-called prime borrowers are having trouble getting financing.

While Twin City area auto dealers acknowledge overall “floor traffic” is down, several emphasize that loans remain available for customers with solid credit — despite the current credit crunch.

They also said the local economy isn’t suffering like the national economy — though all the negative news about the stock market has people nervous, causing some consumers to postpone vehicle purchases.

“As soon as consumer confidence is back, sales will build up again,” said Marty Rebbec, of Rebbec Pontiac Buick and Rebbec Motors.

Mike James of Brad Barker Honda said Honda not only is approving loans, but is “offering special rates right now.”

Other area dealers added that they remain busy keeping up with an increased business in their service departments.

AutoNation Inc., the largest U.S. chain of dealerships, sold 532,862 light-duty cars and trucks last year. This year, amid the credit crunch, that number could fall by as much as 20 percent, said chief executive Mike Jackson.

Credit unions and so-called captive-finance companies — the lending arms of major automakers — are likely to offer the best chance of getting a loan. Paying down outstanding debt to boost your credit score could also help. And car shoppers should consider turning to the used-vehicle market if they can’t get financed, or at least settle for a less-expensive car.

These days, though, even the used-car market can be hard to negotiate. Laura Ryan-Day of Austin, Texas, says she was rejected four times by Wells Fargo & Co. for a loan on a 2006 Honda Element, even though she has no credit-card debt and rents her home, and her credit score is above the national average. Her income as a psychotherapist has been consistently high, she says, and she earned an additional $30,000 last year after she started her own practice.

After she found the car, Ryan-Day, 32 years old, thought getting a $13,500 loan through Wells Fargo, where she has her checking, savings and two credit-card accounts, would be a snap. “I’ve had friends take out loans before for a bigger amount with much less hassle,” she says.

Ryan-Day says that Wells Fargo’s initial denial stemmed from confusion over her tax returns, which the bank said hadn’t been filed. After she found the forms and resubmitted, the bank offered a series of objections to her income and expenses related to her new practice, she says.

Then, nearly two weeks after first applying for the loan, she received a call from Wells Fargo Financial, a subprime unit of the institution. She was quickly approved for a 12.24 percent APR loan for $14,500, after taxes and fees.

“I really needed the car,” says Ryan-Day. “What else was I going to do?” She hopes to pay the loan off in six months.

“We work hard to ensure the best pricing for our customers while managing risk for the company,” a Wells Fargo spokesman says. “Beyond that, we do not comment on customer relationships because they are confidential.”

As of Sept. 20, about 64 percent of auto-loan applications were getting approved, down from 83 percent during the same period last year, according to CNW Marketing Research Inc., a research firm based in Bandon, Ore. Subprime-application approvals suffered a dramatic drop, falling to about 23 percent from 67 percent a year ago, but even near-prime and prime approvals fell somewhat.

When they do get a loan, car shoppers are likely to get less cash from lenders, requiring them to put more money down to borrow — sometimes 10 percent to 20 percent of a car’s value.

The average down payment on a roughly five-year auto loan in August was $3,067, up from $2,435 a year earlier, according to Edmunds.com, an auto-research firm. It’s only the second time the figure has exceeded $3,000 in nearly four years.

J.P. Morgan Chase & Co.’s Chase Auto Finance unit is asking buyers for higher down payments and more documentation for loans, a spokeswoman says. Other standards implemented in the past year or so: no subprime loans longer than 72 months and capping all new-vehicle loans at 84 months.

Customers used to leasing their vehicles will also have to grapple with a tougher financing environment. Detroit’s auto makers have scaled back leasing amid big losses on SUVs, which they relied on more than their foreign competitors. Chrysler has stopped leasing altogether.

As bad as the car-loan market is right now, it could get worse — meaning that waiting too long to buy could be perilous. The federal bailout isn’t likely to make car-loan conditions better in the short-term, as financial institutions are apt to be careful with any new infusion of capital, says Rich Kwas, a Wachovia auto analyst.

“Right now I think it’s certainly tough, and I think it just gets tougher before it gets better,” he says.

One piece of good news: With car sales plunging across the industry, you should be able to at least nab a good price. Overall, U.S. sales of light-duty cars and trucks were down 26.6 percent in September from a year earlier, according to Autodata Corp., a research firm in Woodcliff Lake, N.J. The best deals are being offered by General Motors Corp., Ford Motor Co. and Chrysler LLC, whose sales have suffered the most.

Mary Pilon and Sharon Terlep contributed to this article.

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