The squeeze on getting a car loan

Car dealers say they can still get financing for customers, but experts warn it's a tough market.

EMAIL  |   PRINT  |   SHARE  |   RSS
google my aol my msn my yahoo! netvibes
Paste this link into your favorite RSS desktop reader
See all RSS FEEDS (close)
By Peter Valdes-Dapena, senior writer

Find your next Car

NEW YORK ( -- A massive pile-up in the credit markets is causing serious congestion for new car buyers who want financing, according to industry observers. But some dealers say they're still able to work out deals.

"Credit availability has been the number one issue in our industry for several months now," said Mike Jackson, chief executive of AutoNation (AN, Fortune 500), the country's largest auto dealership chain.

The inability to arrange suitable financing has killed the deal for a lot of customers in AutoNation's 317 dealerships nationwide, Jackson said. He stressed that customers are still coming in, but they can't get a loan they can afford on the vehicle they want.

Almost all auto dealers recently surveyed by the industry newspaper Automotive News said they were having a harder time finding loans for customers with poor credit. About 60 percent said they having more trouble getting financing even for customers with good credit.

During the housing boom, home equity loans were often used to finance car purchases. But the housing market collapse has put more pressure on auto financing, Jackson said.

"The issue with autos right now is that, essentially, we're having our own credit crisis that's brought on by the credit crisis," said George Magliano, director of North American auto industry research for the consulting firm Global Insight.

Still wheeling and dealing

At the same time, a general downturn in auto sales seems to be pulling against a tendency to raise interest rates for customers too much, said Richard Howse, senior director for automotive financing for industry consultants J.D. Power and Assoc.

"Rates are actually down from the first half of 2007 to the second half of 2008," Howse said. But they have recently started to creep up, he noted.

Several auto dealers interviewed by said business is tough overall, but they can still get loans for customers who want them.

"With the volume of business down, they're trying to put every deal together," Tommy Brasher, owner of Brasher Motors in Weimar, Texas, said of his relationship with auto finance company GMAC.

GMAC, which provides financing to General Motors (GM, Fortune 500) dealerships and their customers, would not say how events in the financial markets have affected its business.

Keith Roberts, who owns Hoover Dodge in Charleston, S.C., said he wasn't having any problems either, beyond the fact that customers simply aren't as plentiful as they once were.

"What's affected us more is the media and the media's perception of what's going on," he said. Finding financing deals for customers isn't a problem, according to Roberts. It's getting them to buy a car - period. "People just aren't spending money as they have in the past," he said.

The baggage they carry

But the biggest financing problem financing dealers face right now is one brought on by auto dealers and auto financing companies themselves, said Tawny Arnaud, vice president of sales for Galpin Motors, a chain of nine dealerships in the Los Angeles area.

Many customers who want to trade in vehicles today are still paying off extra-long loans they arranged on their last car purchase, he said. Loans of long as or six years have become commonplace in the industry.

When customers try to buy another new car after three years they often have a vehicle that's worth less than what they still owe on it. That makes financing the new vehicle difficult, or at least expensive, since the amount owed on the old car has to be wrapped into the new car payments.

That's what's making it harder to get affordable car loans for customers -- not the credit crunch - Armaud said. "People really should be thinking in terms of short-term financing."

Where it goes from here

There's simply no way to predict what the most recent developments in the banking sector will mean for the auto industry in the long term, experts said.

"There's no input in the econometric models to capture some of the outcomes we've seen over the last two weeks," said Ford Motor Co.'s (F, Fortune 500) top sales analyst, George Pipas.

"I think this is all new territory for everyone in terms of how long it will take to work through this credit crunch," agreed Deborah Meyer, Chrysler LLC's chief marketing officer.

One thing that experts agree is clear is that overall auto sales won't get better soon, and they probably won't start to come back before the end of 2010, they said.

"If we were in the 6th or 7th inning of the credit crisis, I'd say we're going into extra innings," AutoNation's Jackson said.

For now, Tom Libby, an analyst with J.D. Power and Assoc., said he is still forecasting a very slight upturn in auto sales for next year. The company forecasts 14.2 million sales for this year, he said, and 14.3 million for next year.

"But we're keeping the right to monitor that," he said. To top of page

They're hiring!These Fortune 100 employers have at least 350 openings each. What are they looking for in a new hire? More
If the Fortune 500 were a country...It would be the world's second-biggest economy. See how big companies' sales stack up against GDP over the past decade. More
Sponsored By:
More Galleries
10 of the most luxurious airline amenity kits When it comes to in-flight pampering, the amenity kits offered by these 10 airlines are the ultimate in luxury More
7 startups that want to improve your mental health From a text therapy platform to apps that push you reminders to breathe, these self-care startups offer help on a daily basis or in times of need. More
5 radical technologies that will change how you get to work From Uber's flying cars to the Hyperloop, these are some of the neatest transportation concepts in the works today. More

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.