jrcart

A little of topic, but it is automotive related... sorry.


I just got of the phone with a very good friend of mine that is a GM at a large Audi dealership in the Chicago area. All of the talk about the economy promted me to ask him "How's Business" He replied with a smug laugh. He said this week alone he had 5 deals turned down due to financing being declined to people with 700 + credit scores. He says he's getting decent traffic through the doors, lots of interest in the just released new A4 but can't get deals done because of financing. He said a few months ago someone could walk in off the streeet with a low to mid 600 score and drive off the lot with a $40,000 car with little or no money down. Now they are requiring 10%-20% down payments in some cases. He has also seen a huge increase in the dollar amounts of security deposits being required on leases from the banks. If this is indeed the new way of doing business we are in a lot worse trouble than everyone thinks. According to a credit website I just checked, the average credit score in the U.S is 688, that means there are going to be a lot of people getting declined for loans in the future.

Newzchspy

Jimmy, isn't this is the way it should be?? I mean the guy earning 40 K a year with a small family and house payment shouldn't be looking at a $50 K or more A6 with no $$ down. He should be at VW getting the Diesel Jetta (which by the way, I drove the 2009 and is very strong and very nice.) The fundamentals are still there, you need a downstroke and the income to make the monthly nut. This is where we veered off course 10 years ago.

Vic55

The credit crunch is developing many a dirty bird...

Fico is no longer a reasonable indicator of bad rates. There are 700 scores out there lurking and they are on their way down. Id rather lend to someone who has alread hit rock bottom than some who has yet to crash and burn.

jrcart

I brought up the same point to him and posed the questions were these people just over extended (good credit, just too much of it) and what was their income. On two of the deals that got declined he stated the customers made over $90,000 and in one case over $125,000 and they were looking at cars that were well within their financial ranges.


I agree with you on a guy with a family going out and trying to buy a $50k A6 on a $40k income, that is just plain silly and I don't think my friend was refering to these kinds of deals. I think he was refering to deals that were slam dunks just weeks ago now he is struggleing to get these deals done.

As for a big down payment, I'm not sure if I agree with you on that one. Up until a few months (even weeks) ago you could borrow money on a car anywhere from 0% - 6% (tops) with good credit. I could keep my cash in other investment and conservatively make 6-10%, why put down money when I could make more money with it in the bank or in my portfolio? It was a no brainer, free money. I can afford to pay cash for my toys, but finance most of them becuase the rates are/were so attractive it almost stupid not to.

racetested

I couldn't have said it better. We are in the trouble we are in because of extending credit and swaying numbers to get people loans they really can't afford. I'm all for the new rules if people need to be babysat on what they truly can afford.

My wife watches the show "House Hunters" and I shake my head at the way creditors would get people house loans with no money down, credit car debt, no savings, all wrapped into one.

shardul

iTrader: (1)

Interesting discussiin

sleewell

i went through the loan process 4 weeks ago, it was pretty easy but i have heard how tough it is right now. this was my 2nd car loan with my credit union and i have been doing all my banking with them for years. i called up, told them the amount i was requesting, the make and model and the address to send the check and the next day the check was there. the only part that wasnt pleasant was i got pre approved on a friday @ 4.99%, but when i called on monday to finalize the loan they bumped my rate to 5.25. i was a little mad but its well lower than what most people are getting these days so i wasnt too upset.

my advice to anyone getting a loan right now: buy a car priced within your means (which may be less you have been expecting the last few years), use a source you have been with for a while and have a good down payment.

Jakpro1

Sad that the average American (people going in to buy cars) are finding out just now why the bailout was so important. I knew they would be b-itching and moaning about it until they went in to get a loan for a car or a new credit card. Most of my business is through auto dealers right now and WOW what a horrific year. I feel for your friend in Chi Town. When Bill Heard (largest in the US) went belly up, most of us in the industry just stood watching our screens like it was 9/11 again. Just never dreamed that would happen.

Average Joe finally is getting or will be getting it shortly when they apply for credit cards for holiday shopping. Oops.....duhhhhh, I guess we need to bailout the banks honey?

Never said it was gonna make everything all better on Wall Street as was obvious lately, but the guys that said to let all this just wash out were just insane. I just cannot imagine what would have happened if industry was prevented from getting short term credit for 9months to a year. OMG!

Oh as I am typing, Linens and Things is now done and Circuit City could be belly up in a few weeks (37 cents a share). Why??? Linens and Things and others can't get credit to purchase their 4th quarter holiday stock.

Hopefully we'll get it back and maybe even a couple of heads to roll, but the bailout was and is essential. Polls were a joke by the way. Buddy of mine got polled and the question was "Is the bailout favorable in your opinion" He said OF COURSE not, but it's necessary. Is there a question on your poll about it being necessary even if it sucks. Nope.

Sorry to ramble, just hit a soft spot with me as me and the car dealers struggle out here.

Thank God for rainy day funds.

SteveHI

I agree with the sentiment that large purchases, when financed, should have a meaningful equity piece. Our economic growth over the past decade+ was built on cheap and easy credit, and now the necessary belt-tightening is happening. It's very painful to de-lever our entire economic system, from consumers to corporations to municipalities to state and federal government, but it has to be done - we are over-extended from top to bottom in this country.

Marcus Frost

While I appreciate all the criticism of extending loans to individuals who can't afford it, I think Jim's point was there's been an overcorrection in the credit crunch and I have to agree. I am not in the automotive business but we've seen the same over tightening happen in the commercial real estate market, and honestly I can appreciate looking at deals that are overleveredged but we've seen very sound, well structured deals being rejected or even being stopped in the middle of the process for really pretty trivial reasons.

Fear is a terrible thing. It's emotional, irrational, dangerous, and potentially catastrophic - and right now it's the root of all the turmoil. There are market fundamentals that feed the fear, but if you ask anyone to show you data today that conclusively prooves unmediated fear is warranted, they will tell you no. Credit has to flow, and I will agree that having proper equity into a deal is required, but we cannot have fear usurp reason.

There was a great piece in the NYT today by Mr. Warran Buffet that I think did a good job at illustrating the collateral damage fear has had on what are today fundamentally sound companies and their values on the equities market. I agree with him 100%.

There are some market corrections that have to take place but I just don't agree with all the gloom and doom that is perpetuating the media and markets these days. I could go on and on about this but the bottom line is I really wish that there could be some sense put into all this fear and turn it into objectivity, rather than letting pessimism run rampant.

-m

Newzchspy

That's the media for you. I listen to WBBM in the morning drive and try to ignore about 98% of what I hear since there's not much I can do as an individual to change it. However, there will always be the "knee jerkers" who will react to the latest or any news without forethought or reason. Thats why I plug along day after day like the lil locomotive that could and it seems to work for me.

I did hear about Bill Heard and it reverberated through Orlando Fl the day it happened. Funny thing, Disney World has not seemed to slow down and although the crowds were lighter, those that were there were spending plenty of $$.

Again, I do blame a lot of this on the media as they are always looking for the next BIG news story. I have confidence things will come around. It may take a bit, but this too shall pass. Ahhhhh, the wisdom of age.

komp55

The difference is that what the market considers to be "very sound, well structured deals" has changed dramatically. It's not an overreaction; if the liquidity is not readily available (which it isn't), you can be sure lenders will allocate resources (i.e., loans) only to the most rational creditworthy deals. It's simply the new reality and it's about freakin' time, too.

c32used

+1 on your very good answer

Especially since you ain't talking about parts needed or ordered

c32used

Hey all do like everyone and just blame it on Bush

Rock

I don’t know how you can be in business and not feel the current credit and economic crunch. Perhaps if you’re involved in the distributions of alcoholic beverages or illegal drugs, this crisis may have actually improved your dealings……………. but for most of us here, there is no Utopia to be had.

I truly do feel for the guys that are caught in the middle of this nightmare. Anyone that has started a business from scratch or expanded, has at one time or another leveraged themselves. I see many people (customers) financially paralyzed and that is certainly not good for any of us small business owners.

Like Jim said, thank God for a rainy-day fund. Oh, one more thing……………..... live below your means.

Fikse

guess it depends on the bank.... When buying my GT-R I was just cutting them a check, they really wanted me to finance, so I told them to knock $1000 of the price of the car and I would finance the whole thing through Nissan Finance and pay it off right after the account was setup.... They took the deal, zero down, sign and drive, financed the whole thing, no issues....

if 700 is no good, what's a decent score these days?

Marcus Frost

I understand that but I am talking about deals that even today would be considered sound, but because banks have exposed themselves one way or another to non-performing loans, or other toxic assets, the good deals get stuck. I'm not just talking about development deals, I'm talking about lines of credit, commercial paper, you name it. Hopefully we'll see these bad loans and assets get dealt with sooner than later so economic development can get back on track.

-m

jrcart

Marcus, I guess some of these guys don't get what we are saying. We're not talking about non-credit worthy people getting denied, I'm talking about people with good or even great credit, great employment history and healthy income getting denied on a measly $500-$600 a month auto loan. You all think things are bad now, if that kind of stuff keeps up for long we will be in real trouble, not this fake panic trouble the media is trying to push on us, gee, do you think that it being an election year has anything to do with that???. Trust me I don't believe 90% of what the media says either, my company has more work than we can handle, business is great but these banks have gone from one extreme to the other. They have to find a healty balance. As for the housing market, I'm happier than a pig in ****, I'm looking for a new house right now, I am simply amazed at what I can get for my money now days. You know what they say, one mans loss is another mans gain.

skooby

Chinese payment needed to buy car here- Onelumpsum.

rarfinancial

The banks need deals bad also, remember without loans lenders are done. They need us bad. If it makes sense they say yes. I am having the best month in sales I have ever had and getting deals bought easy,you just have to present them slowly and in order. I just applied for a 200k loan for my business to buy more inventory.. The loan was aproved without P.O.I. in one weeks time. It's all in your approach. Now is the time to grow your business, put together a great pkg and get to your banks, they can't wait to loan $$ to the right person with the right plans. Hey Jim I have been thinking of picking up a BS from my local MBZ dealer, It's been in their showroom for months. I'm getting itchy

MB Fanatic

Getting financing these days in down right difficult, regardless of purchase. My company where we have over $600M in assets, we have difficulty getting financing here unless we put 40% down for our purchases; and we are talking about hotels doing $30 million gross a year. Times are only going to get rougher guys. Stay in it for the long haul and only invest if you can afford to do so and not meet the bare minimum.

mkonei

i used to finance about five to six owner operators a month Jim. i might have done three in the last twelve months. the banks are turning down high FICO scores with solid haul references left and right. With fuel making a downturn, and the promise of the credit crunch easing up, i hope that will change soon. luckily retail is second in line to fleet sales for me.

komp55

No, actually you're not getting the paradigm shift that has taken place in the lending market at the present time. When lenders have extremely limited liquidity, as most currently do, they seek to create assets (i.e., loans) that offer the best combination of profitability and low risk. Historically, automotive lending and real estate development loans have not been known for either characteristic due to their higher than averaging servicing costs and risk characteristics. As a result, and unfortunately as you suggest, in the present market conditions neither past creditworthiness nor demonstrated income are enough to justify lenders allocating liquidity to these categories as they have in the past.

Liquidity will improve eventually, and lending will once again become more readily available to broader market sectors, but for all of our sakes, let's hope the irresponsible lending and borrowing practices that got us into this mess in the first place are forever permanently curtailed.

HYEPWR

So what loans are more palitable to banks these days?

CWW

This whole mess stemmed from INSANE mortgage underwriting.

I knew we were in for some serious $h!t after one conversation back in 2003/2004. I was getting my hair cut, and my stylist (who makes like $40k a year) was telling me how he and his domestic partner (a waiter who makes maybe another $30k a year) had just bought a house and were moving into it.

At first I was like "aww that's nice", but then he told me it was like two blocks from my own place. I actually was familiar with the one he bought, I usually jogged by it and had taken one of the fliers out of the info-tube thing. The price you ask...$429,900.00. So assuming they negotiated the price down to $360k or $370k, that would still be like 60%+ of their GROSS combined income. And he was actually HAPPY about it!

Then over the next couple years, I repeatedly ran into situations where every skeezball McDonalds employee, waiter, nurse, and delivery driver all seemed to be buying a house. Really nice houses. I have a friend who filed had bankruptcy in 2003 after she got a divorce, and in 2006 she bought a $250k condo, not making much more money than she was when she went bust. It got to the point where I think it was honestly easier to buy a house than to rent an apartment.

Once I went back to law school, I was astounded by how many of the other students who have little to no income were surviving by buying houses and then renting out all the separate bedrooms to other students.

At some point, common sense just flew out the window. It used to be, nobody wanted to underwrite a loan unless the house expenses would be around 1/3rd of the borrower's income or less. Then it got to where they were giving mortgages to anybody with a pulse, whether they had the income to support the payments or not. A lot of these loans, just the mortgage payment came to 50% or more of gross income, and that's not counting taxes, insurance, maintenance, etc.

I always wondered how the hell they were making any money off it. Now I know...they weren't.