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#1 sale-killer: Credit, not fuel prices


DETROIT — Tight credit has replaced high gasoline prices as the chief impediment to selling a new vehicle, top Chrysler executives say.

Deborah Meyer, Chrysler LLC's chief marketing officer, says dealers and consumers tell her "financing is the biggest challenge that customers have in the marketplace."

"We've seen customers adjust to the gas prices," Meyer told Automotive News. "But if you can't get the right kind of credit, you can't buy the car at all. I don't see a quick fix around the corner."

In a speech here last week to the Automotive Press Association, Chrysler co-President Jim Press said the availability of credit is "the biggest issue that we have as an auto company."

This headache is not limited to Chrysler. Mark LaNeve, General Motors' North American sales chief, estimates tight credit is costing GM 10,000 to 12,000 sales each month. In August, GM reported selling 307,285 new cars and trucks in the United States, down 20.3 percent from the year-ago month.

"Credit tightening is an industrywide problem," LaNeve said. "It is more acute for ourselves and maybe Chrysler and Ford than some of the Japanese competitors. It is something we have got to work ourselves out of."

Hunkering down

Industry executives say some vehicle lenders are raising loan rates, demanding larger down payments and tightening credit standards. Amid the housing slump, fewer consumers can tap the equity in their homes to finance vehicle purchases. Several major banks, such as HSBC, have fled vehicle financing altogether.

On Aug. 1, Chrysler Financial eliminated vehicle leasing in the United States. Meyer conceded that Chrysler's withdrawal from leasing "removed an option for some of our consumers." But she added: "We have had dealers working with different banks that can provide finance solutions."

In response to the consumer credit crunch and high fuel prices, Meyer said Chrysler is changing the way it packages features on several Chrysler, Dodge and Jeep vehicles. By early 2009, she said, the company will offer high-end features such as leather seats on fuel-efficient base models.

Meyer said the strategy is aimed at getting buyers into new vehicles they want at a lower price, making financing easier.

"You look at the (Chrysler) Sebring or the (Dodge) Avenger that get 30 miles per gallon, or even the Caliber," Meyer said. "We'll upgrade the base interiors for them. People want the best-mileage car and they want a nice interior. But they might not need all the extra features."

In August, Chrysler's U.S. new-vehicle sales fell 34.5 percent from the year-ago month — the largest drop of any major automaker. Leases amounted to just 2.0 percent of Chrysler LLC's new-vehicle transactions, down from 23.4 percent in July, according to J.D. Power and Associates.

'Nervous' banks

Kim Haws, general sales manager of Sean McAdam's Dodge City of Rochelle, in Rochelle, Ill., said an inability to get customers financed is costing his dealership five to seven new and used vehicle sales a month. The dealership sells about 10 new vehicles and 20 to 30 used vehicles each month, he said.

"Credit scores have been dropping for the last two to three years," Haws said. "But the lenders were still going along, figuring out ways to buy the deals. Now the banks are nervous. They are more demanding — more money down, better income-to-debt ratios. It is definitely more a factor than gas prices."

Dealers of non-Chrysler brands also report problems with credit availability. Roya Akbar, finance manager at Pearson Ford in San Diego, said local banks are reluctant to finance customers who want to buy vehicles with V-8 engines, because of declining residual values for cars and trucks with poor fuel economy. That costs the dealership seven or eight sales a month, Akbar said.

"Some banks give you ridiculous rates," he said. "There is no way you can make the deal. This is the worst I've ever seen." c

Alysha Webb contributed to this report

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