The Industry's Leading Source For F&I, Sales And Technology

Article

Credit: Is It Available?

December 2008, F&I and Showroom - Feature

by Gregory Arroyo - Also by this author

I bet most of you never thought you’d see the day — the day when we’d be promoting the availability of credit rather than that new hot car or truck. Well, that day has come.

The source of this new revelation was the Chicago Automobile Trade Association (CATA). Shifting its $1.8 million advertising budget away from its Internet portal Website, www.drivechicago.com, the association launched on Oct. 28 a campaign to reassure consumers that competitive funding for a vehicle transaction is available.

The funny thing was the campaign wasn’t just aimed at consumers. In fact, Erik Higgins, director of dealer affairs for the association, said the campaign was also aimed at restoring confidence among its more than 500 dealer members.

“We’re trying to overcome the stigma that everything is frozen,” said Higgins, who estimated that the association lost about 12 members this year to the economic crisis. “Hey, lousy credit faces the same hurdle it did a year ago. I don’t think this changed overnight.”

So, did the market freeze? I talked about this last month. My feeling was it hadn’t, but I wasn’t so sure come November. So I popped onto our F&I forum to talk to some of the F&I managers there.

One forum member said it was clear lenders were spooked, as guidelines tightened significantly in October. Another forum member said the main source of dealer concerns is floorplan financing. Some lenders pulled out, while others changed the way they do business.

Rather than spew out some words about companies managing risk, I searched for something more concrete. That’s when I came across the Federal Reserve Board’s October 2008 Senior Loan Officer Opinion Survey on Banking Practices. The board does it every quarter. And let me tell you, if there is one document economists will be studying for years to come, it’s this one.

Across the board, there wasn’t a category of underwriting that didn’t tighten during the third quarter … absolutely none.

About 85 percent of the 55 domestic banks surveyed had tightened lending standards on commercial and industrial loans to large- and middle-market firms during the quarter. About 75 percent said they did the same for small firms.

Even more unbelievable is about 95 percent of U.S. banks surveyed said they increased the price they charge large- and medium-sized companies for credit lines. Think about that for a second, almost every bank in America increased credit prices.

What happened on the consumer side was even more daunting, with nearly 65 percent of respondents saying they tightened lending standards during the quarter. Sixty percent said they did the same for credit card loans. Additionally, a significant amount of respondents said they raised minimum required down payments on consumer loans, as well as spreads on loan rates.

“Half of domestic banks indicated that they had become either somewhat or much less willing to make consumer installment loans over the past three months, up from 35 percent in the July survey and the largest fraction in more than two decades,” the report stated.

One thing the report makes clear is the credit crisis was a big-bank crisis, not a bank-wide crisis. In fact, a higher amount of big banks said they tightened standards for both consumer and credit card loans. So there were loans to be had if you knew where to go.

The Federal Reserve Board’s report also made it clear that consumers were just as spooked as lenders, with 50 percent of respondents saying they experienced weaker demand for consumer loans of all types during the quarter. That stat alone is why I really think the CATA is on to something here. Yes, it’s clear lending came to a standstill, but the last thing we want to do is pass that message on to our customers.

The CATA isn’t the only one that’s realized this, as General Motors, Toyota, Ford, and Nissan are running similar advertising campaigns. “We know there is still demand ... but with the negative consumer news of late, consumer perception is there’s no financing available,” said Ben Poore, vice president of marketing for Infiniti.

I recently asked Mark Mishler, president and CEO of Resource Automotive, what he thought dealers should do in times like today. His response, “Sell more cars.” Isn’t that the truth?

For F&I managers, it’s time to start studying your lenders (see page 18 for tips) to see what they’re buying. Hey, we can either be proactive like the Chicago dealer association, or we can buy into this market crisis. I think you know where I stand.

Your Comment

Please note that comments may be moderated. 
Leave this field empty:
Your Name:  
Your Email:  

Blog

So Here's the Deal

Ronald J. Reahard
Menus Don’t Work Miracles

By Ronald J. Reahard
A fancy new menu can help streamline processes and improve customer engagement, but it won’t replace the hard-won skill and compassion of a true F&I professional.

Avoiding the AAA Objection

By Ronald J. Reahard
Top trainer advises F&I pros to eliminate the ‘I have AAA’ objection by downplaying the very real — but relatively minor — roadside assistance benefit included with most service contracts.

(Video) Capture Missed VSC Sales

By Ronald J. Reahard

The Dealer Moved My Goal Posts

By Ronald J. Reahard

Done Deal

Gregory Arroyo
Car Buyers Need F&I

By Gregory Arroyo
Current market trends are playing right into the F&I product pitch, but they also reveal trouble ahead for the automotive retail industry at large.

Protecting F&I’s Future

By Gregory Arroyo
The editor responds to a reader’s question about whether F&I managers are being replaced by iPads and digital retailing tools.

Game Almost Over

By Gregory Arroyo

The Repair Is Covered

By Gregory Arroyo

Mad Marv

Marv Eleazer
'We Never Buy This Stuff'

By Marv Eleazer
Every F&I pro gets the occasional ‘F’ customer, but they’re a small part of your business and they’re not worth a minute of mental anguish.

Stop Painting Dealers With a Broad Brush

By Marv Eleazer
His Madness has a few choice words for media members who obsess over every act of dealer malfeasance while ignoring their charitable and volunteer efforts.

I Love F&I. How About You?

By Marv Eleazer

Is That Legal?

By Marv Eleazer

On the Point

Jim Ziegler
Bound to Fail

By Jim Ziegler
Da Man returns with a message to vehicle manufacturers jumping into the subscription waters: It ain’t gonna happen.

Sharpen Your Survival Skills

By Jim Ziegler
‘Da Man’ has a plan you can use to survive the collapse of the car business and remain profitable through the dealer apocalypse.

Sales Rock Stars Still Exist

By Jim Ziegler

The New Stooges

By Jim Ziegler