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Signs of Life: New-Car Sales to Sub-670 Buyers on Incline

March 26, 2009

BANDON, Ore. — The industry is showing signs of life, as lender thresholds

for new-vehicle buyers showed signs of loosening up in February, reported CNW Research.

After reaching a high-water mark in October, the average

FICO score for new-car buyers slowly dropped to 723 and change in February.

Simultaneously, the share of new-car buyers with FICOs below 670 rose from 6.5

percent in October to 10.7 percent in February.

“Some of this can be put at the feet of financial institutions

willing to ease back on credit requirements, and an equal amount can be

attributed to those people with marginal FICO scores coming back to the

market,” wrote CNW’s Art Spinella.

And despite closing ratios being down in February, CNW

Research said there are other indications that the industry is coming back to

life.

“It may sound weird, but the industry is showing signs of

life because of closing ratios coming down,” wrote Spinella.

He pointed out that when closing ratios reached nose-bleed

heights in the final quarter of 2008, a large percentage of consumers were

buying cars because they were in need of a new vehicle. In contrast, many

“lookers” stayed home during that period, a consumer category Spinella thinks

may now be ready to buy.

“They are beginning to come alive,” wrote Spinella. “CNW’s

Floor Traffic Index shows signs of life after a near-death experience

throughout 2008. The trend line is barely perceptibly up, but up nonetheless.

“And with that comes the concurrent decline in closing

ratios.”

Given that the average new-car shopper takes six months from

initial consideration of buying a vehicle until actual acquisition, Spinella

said he doesn’t expect to see solid gains before the third quarter of this

year.

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