Rattled by tight credit and rising default rates, lenders are reducing the amount of money they will loan toward a car purchase.
The policy is costing dealers finance and insurance income. In some cases it's also costing them car sales.
Customers must cough up heftier down payments, settle for a less expensive vehicle or drop pricey products such as extended service plans, dealers say. In some cases, they simply walk.
"A year ago, if a buyer could fog a mirror they could get a loan," says Dale Willey, owner of Dale Willey Automotive in Lawrence, Kan. "Today, much has changed."
The advance rate — the amount lenders are willing to finance —usually is expressed as a percentage of a new vehicle's invoice price. In more generous times, some lenders even funded a percentage of the sticker price.
Dealers say lenders now typically advance 80 to 120 percent of a new vehicle's invoice price, depending on credit risk. Early last year, advances ranged from 110 to 180 percent of invoice.
"This is certainly one of the factors putting pressure on retail sales," says Greg Zulli, director of financial services for Asbury Automotive Group in Atlanta.
Dealers see similar advance-rate reductions on used vehicles.
"Honda, Toyota and some noncaptive lenders are using Black Book instead of NADA book," says George Liang, senior vice president of DCH Auto Group in South Amboy, N.J. "Since the price in Black Book in general is lower than NADA, there is a 10 percent reduction in advance as a result."