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Posted on Sun, Oct.

05, 2008

Car loans harder to get


By MIKE SPECTOR
The Wall Street Journal

The era of easy auto loans has come skidding to a halt.

Mortgages were among the first consumer products to be hit by the


credit-market freeze. Now car loans and leases are drying up as dealers,
auto-finance companies and other lenders are having trouble finding
money to lend to car buyers. The upshot: Those with less-than-stellar
credit are getting shut out of loans, and even some so-called prime
borrowers are having trouble getting financing.

"You have to just about be walking on water to get financed," said Mike
Jackson, chief executive of AutoNation, the largest U.S. chain of
dealerships. He added that the subprime market is "basically almost
closed" but "even with our prime customers, banks are looking for a
reason to say no."

AutoNation dealerships sold 532,862 light-duty cars and trucks last year,
and this year, amid the credit crunch, that number could fall by as much
as 20 percent, Jackson says.

What it means

For shoppers with good credit, financing is still usually available,


especially among healthier foreign automakers like Toyota Motor Corp.
and luxury companies like BMW. But overall, financial institutions have
become less likely to lend.

Credit unions and so-called captive-finance companies — the lending


arms of major automakers — are likely to offer the best chance of getting
a loan. Paying down debt to raise your credit score could also help. And
car shoppers should consider turning to the used-vehicle market if they
can’t get financed, or at least settle for a less-expensive car.

These days, though, even the used-car market can be hard to negotiate.
Laura Ryan-Day of Austin says she was rejected four times by Wells
Fargo for a loan on a 2006 Honda Element, even though she has no
credit-card debt and rents her home, and her credit score is above the
national average. Her income as a psychotherapist has been consistently
high, she says, and she earned an additional $30,000 last year after she
started her own practice.

After she found the car, Ryan-Day, 32, thought getting a $13,500 loan
through Wells Fargo, where she has her checking, savings and two
credit-card accounts, would be a snap.

"I’ve had friends take out loans before for a bigger amount with much
less hassle," she said.

Ryan-Day says that Wells Fargo’s initial denial stemmed from confusion
over her tax returns, which the bank said hadn’t been filed. After she
found the forms and resubmitted, the bank offered a series of objections
to her income and expenses related to her new practice, she says.

Then, nearly two weeks after first applying for the loan, she received a
call from Wells Fargo Financial, a subprime unit of the institution. She

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was quickly approved for a 12.24 percent APR loan for $14,500, after
taxes and fees.

"I really needed the car," said Ryan-Day. "What else was I going to do?"

She hopes to pay the loan off in six months.

"We work hard to ensure the best pricing for our customers while
managing risk for the company," a Wells Fargo spokesman said.
"Beyond that, we do not comment on customer relationships because
they are confidential."

Getting approval

As of Sept. 20, about 64 percent of auto-loan applications were getting


approved, down from 83 percent during the same period last year,
according to CNW Marketing Research, a research firm in Bandon, Ore.
Subprime-application approvals suffered a dramatic drop, falling to about
23 percent from 67 percent a year ago, but even near-prime and prime
approvals fell somewhat.

When they do get a loan, car shoppers are likely to get less cash from
lenders, requiring them to put more money down to borrow — sometimes
10 percent to 20 percent of a car’s value. The average down payment on
a roughly five-year auto loan in August was $3,067, up from $2,435 a
year earlier, according to Edmunds.com, an auto-research firm. It’s only
the second time the figure has exceeded $3,000 in nearly four years.

JPMorgan Chase’s Chase Auto Finance unit is asking buyers for higher
down payments and more documentation for loans, a spokeswoman
says. Other standards implemented in the past year or so: no subprime
loans longer than 72 months and capping all new-vehicle loans at 84
months.

Americredit, a big subprime auto lender, expected to originate about $10


billion in loans between July 2007 and June 2008 but fell short. It now
expects to originate about $3 billion for the year ending in June 2009, a
spokeswoman says. The firm recently reached a financing deal with
Wachovia for auto-asset-backed security notes it expects to issue in the
future. Customers can expect interest rates on Americredit car loans to
be 2 percentage points higher than a year ago, a spokeswoman says.

Leasing scales back

Customers used to leasing their vehicles will also have to grapple with a
tougher financing environment. Detroit’s automakers have scaled back
leasing amid big losses on SUVs, which they relied on more than their
foreign competitors. Chrysler has stopped leasing altogether.

One piece of good news: With car sales plunging across the industry,
you should be able to at least nab a good price. Overall, U.S. sales of
light-duty cars and trucks were down 26.6 percent in September from a
year earlier, according to Autodata Corp., a research firm in Woodcliff
Lake, N.J. The best deals are being offered by General Motors, Ford and
Chrysler, whose sales have suffered the most.

GM’s employee-discount program ended last month, but the automaker


plans to offer discounts of up to $7,000 on some models, the company
said Wednesday.

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