Late in 2008 and for most of 2009, even customers with good credit had trouble financing a car purchase. But now auto lenders are somewhat freer with their money, dealers say.
"The average customer can get credit again," said Jim Quinlan, president of Reeder Chevrolet in Knoxville, Tenn.
Said Michael Maroone, COO at AutoNation Inc., the nation's largest dealership group: "We are seeing higher closing rates, and I really credit that to improved credit year over year." He said the lending climate began to turn around in the fourth quarter, and closing rates in turn rose slightly in December. He declined to give the company's current closing rate.
Said Anthony Pordon, senior vice president for Penske Automotive Group: "We are seeing more deals both with the captive finance lenders and the banks."
Ten of the nation's largest dealership groups representing almost 1,000 stores told Automotive News that credit standards are slightly easier for the majority of their customers.
Lenders are approving more applications for two reasons:
1. Credit markets opened up, improving lenders' liquidity.
2. Consumers are more realistic and educated. They have paid off their debt and arrive at the dealership with a down payment, so they're in a better position to get financed.
Lenders remain strict on some counts. Consumers with substandard credit or car buyers who still owe large balances on trade-ins won't get loans easily. Customers must make healthy down payments to get financed.
Finance companies often don't allow customers to count rebate cash as down payments, although GMAC Financial Services is an exception, said Chuck Simon, general manager of Dominion Auto Group, a dealership in Richmond, Va. And dealers usually can't call a finance company and persuade it to accept a customer it had initially declined.
"Rehashing deals is a lot more difficult than it ever was before," Simon said. "The computers don't let them do it."
In the third quarter of 2009, only "super prime" customers with excellent credit were getting financed easily, reports research firm Experian Automotive. Auto loan volume declined even for "prime" customers with good credit, Experian's report said.
Prime customers usually have credit scores of 680 to 730. Above 730 is super prime, while nonprime or near-prime is usually 620 to 680. Below 620 is subprime.
Better approval rateGreg Zulli, Asbury Automotive Group's director of financial service, declined to give specific numbers but said: "We're seeing a slightly higher approval rate, maybe a couple of percentage points higher. And we're booking a slightly higher percentage of our approvals."
The improved closing rate is partly because the customer mix is changing. AutoNation's Maroone said.
"People that are coming in are serious buyers," he said.
And customers know more about auto finance when they arrive. Rather than holding exaggerated expectations about how large a loan they can get, they arrive at dealerships already knowing their credit scores and knowing they will have to make a down payment. Many have paid down their credit card debt.
"Credit has been a front-page topic for the past year," said Gary Allgeier, director of finance for the Suburban Collection, a group of 40 dealerships based in Troy, Mich. Consumers are no longer unrealistic about their ability to borrow, he said.
More money availableCredit is easing in part because lenders have more money available. Many lenders rely on the asset-backed securities market to help fund their auto finance business. They pool loans and sell them as securities to investors. But after the market for similarly bundled mortgages collapsed, nearly pulling the global financial system down, the market for pooled car loans dried up.
That market began rebounding in late 2009.
Steven Lambert, Nissan Motor Acceptance Corp. CEO, said the recovering market for asset-backed securities makes it easier for the auto finance companies to borrow money, funds they can use to write new loans.
In November, GMAC, the primary lender for the General Motors Co. and Chrysler Group dealer networks, raised nearly $1 billion selling auto loan securities. It raised another $2 billion in a bond issue earlier this month. And it received a $3.79 billion cash infusion from the U.S. Treasury in December.
"We have definitely seen GMAC in full gear for us," said Sid DeBoer, CEO of publicly held Lithia Motors Inc., which has a large concentration of Chrysler and GM dealerships. "GMAC is doing a lot more deals than they did even two months ago, and it's helping us sell more cars."
Lenders' improved liquidity has also helped provide more funds for dealership's wholesale financing, or floorplan, although lenders remain selective in taking on new accounts. Increased funding also has led some lenders to consider consumers with a few credit blemishes.
"We're doing what we call custom or near-prime loans again," said Marc Sheinbaum, CEO of Chase Auto Finance. "We are doing analysis to see when we turn the dials and how far we turn them."
Tony Boutelle, CEO of Credit Union Direct Lending, said some lenders are even willing to consider consumers who have had a foreclosure but still have income and may be a good credit risk.
"In the past, if you have a foreclosure on your credit report, forget about buying a car for seven years," he said. But now, lenders "are loosening up to at least make offers to those individuals."
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