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Saturday, Jun 3, 2023

Dealers Say Credit Crunch Isn’t Affecting Car Loans

Everything from hikes in fuel prices to the mortgage crisis have been blamed for the ongoing decline in car sales, but one Valley auto dealer has a different take on what’s contributing to the problem. According to Gary Faga, head of Ladin Auto Group in Thousand Oaks, the perception that financing is unavailable for would-be car buyers has discouraged consumers from patronizing dealerships. They think, “I can’t get financed,” Faga said. “It’s very frustrating.” That’s because the opposite is true, he asserted. “Right now all the media blasting says that it’s impossible to get loans. That doesn’t seem to be the case There’s no shortage of cash but a shortage of people. The amount of customer flow has been shortchanged because of the media telling people they can’t do anything right now.” Faga acknowledged that financiers are more stringent in structuring deals but insists that financing is available for consumers of all stripes, bad credit and all. Just recently, Ladin sold a car to a customer with a FICA store below 500, he said. While the customer was required to make a higher down payment, she ultimately was able to purchase the vehicle. Ford Motor Credit Co., Hyundai Motor Finance, BMW Finance and Mini Cooper Finance have all been highlighted by area dealers for making financing readily available to customers. Because Ford has long had prudent credit standards in place, according to spokeswoman Meredith Libbey, Ford Motor Credit hasn’t needed to change its lending guidelines. “We never got caught up in the sub-prime mortgage mess,” Libbey explained. “We’ve had prudent credit standards for years. Our portfolio is performing the way we’d expect to. We have never gotten into the high risk segment. Only about 4 percent of our portfolio is considered high risk. I’ve read about some other organizations that had a lot of sub-prime lending. We’ve had prudent standards, and we haven’t changed that.” As a result, Libbey said that the company hasn’t changed its guidelines for approving financing for car buyers. If Ford Motor Credit Co. approved a car buyer for a loan in the past few years, the buyer would still be eligible for a loan today, barring any major changes in the buyer’s financial history. “Our credit criteria hasn’t changed,” Libbey said. “We should be able to work with them. We have heard about some other organizations who have changed their credit standards.” GMAC Financial Services is one such company. On Oct. 13, it announced that it would require car buyers to have credit scores of 700 and above. Moreover, the company is limiting contracts with higher advance rates and longer terms. “We had to, as a result of the current capital and credit market environment , make some adjustments to pricing and underwriting in the auto finance business,” GMAC spokeswoman Gina Proia said. “This is a result of the reduced access to funds and the increased cost of funds currently.” In other words, because it costs more for finance companies to borrow funds in the market, they’ve had to make pricing adjustments to the financing they offer customers. In light of the news about the changes GMAC is making, California auto dealers have expressed concerns that they will go out of business. Reportedly just 40 percent of California consumers meet GMAC’s new criteria. Asked whether or not GMAC’s new guidelines will threaten the livelihoods of auto dealers, Proia said, “Obviously these are challenging times, and these are decisions that were not taken lightly in order for us to manage our business. During this significant market disruption, we’ve had to take some difficult steps.” The good news is that once the credit markets stabilize GMAC might consider making its consumer criteria less lenient. Consumers using Ford Motor Credit to purchase a car will have factors other than their credit scores taken into consideration. According to Libbey, the particulars of the vehicle purchase are considered as well as debt-to-income ratio, a statistical analysis of the customer’s ability to make payments and dozens of additional variables. “Our only business is putting people behind the wheel,” she said. “We are hearing that foot traffic in the stores is not as great as we’d like it to be. With what’s going on with the economy, some people are holding back who might be terrific (for financing). If they came in, we’d probably fall all over ourselves.” Chris Sweeney, the general sales manager at Vista Ford in Woodland Hills, attested to how available Ford Motor Credit has made financing to customers. “I don’t feel that Ford has made it any more difficult,” he said. “They’re lending money and approving pretty much on the same guidelines that they had before… Other banks outside of Ford Motor Credit have tightened up, but Ford Motor Credit is still a viable option, and we use them 80 percent of the time.” Despite widespread reports indicating that obtaining financing for new vehicles is hard to come by in a period of economic decline, Sweeney said that Vista Ford, like Ladin Auto Group, is being patronized by customers with a broad swathe of financial backgrounds. “We still have people coming in with marginal credit attempting to buy,” Sweeney said. “Some people qualify for car loans, and some don’t, as it was before.”

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