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Wisconsin Dealer Group's Leader Troubled By Alleged Race Gap in Nissan Loans

July 9, 2001

The head of Wisconsin's automobile industry trade group says he is puzzled and troubled by a study indicating that, on average, auto loans arranged through Nissan dealers cost black customers in the state $831 more than whites, according to a July 9 story by Paul Gores in the Milwaukee Journal Sentinel.

The finance charge difference between black and white customers in Wisconsin was the largest among the 33 states that had sufficient data to be included in the study, which the author said took into account credit histories and other variables.

"It went high on my radar screen when I saw this," said Gary D. Williams, president of the Wisconsin Automobile and Truck Dealers Association in Madison. "To see the numbers here that would indicate Wisconsin is out of line on something is very surprising. I don't have an explanation for it in any regard."

Williams said he planned to analyze the data.

The leader of Milwaukee's Fair Lending Coalition, however, was less surprised or mystified by the study's findings. Loretta Bruce, executive director of the coalition, said state minorities often find themselves trying to haggle with auto dealers who are unwilling to negotiate.

"I think people of color feel disenfranchised by the whole credit system," Bruce said.

The study, conducted by Vanderbilt University professor Mark A. Cohen in connection with a Tennessee lawsuit against Nissan's lending unit, Nissan Motor Acceptance Corp., presents statistics comparing "similarly situated" blacks and whites but doesn't put forth theories for the disparity. It controlled for factors such as creditworthiness of customers, the amount financed and the term of the loan, Cohen said.

The results were first reported in early July by the New York Times.

The study covers about 311,000 car loans arranged through Nissan's finance arm, Nissan Motor Acceptance Corp. (NMAC), in 33 states between 1993 and 2000. It found that the finance charge markup for blacks was consistently higher than for whites nationwide - an average about $500 more for blacks.

Nowhere was the gap bigger than in Wisconsin, where Cohen analyzed numbers for nearly 6,000 loans through Nissan's lender unit and concluded that the average finance charge markup amounted to $1,132 for blacks and $301 for white customers.

Dierdre Dickerson, Nissan spokeswoman, said the company couldn't offer a detailed response yet.

"We've only been able to do a very cursory examination of the material. Until we actually get a chance to look at it and kind of do our own data analysis, we can't comment on the report at all," she said.

A Milwaukee-area Nissan dealer told the paper that questions regarding the study were being referred to Dickerson. According to Nissan's Web site, there are 18 Nissan dealers in Wisconsin.

When a dealer arranges in-house financing for a car, he or she typically submits the customer's credit application to the lender. Lenders affiliated with automakers approve an interest rate for the car loan based on the person's income and credit history, but then also allow dealers to add percentage points to that rate without informing the consumer, a practice sometimes referred to as dealer markup or rate spread. That finance charge markup then is split between the dealer and the lender.

One longtime Milwaukee-area car salesman said "it ultimately gets down to that business manager thinking, 'How much spread can I make in a rate on individual customers?'"

Car dealers justify the mark-up as the customer's cost of being able to obtain a loan on the spot instead of going back to a bank or credit union for financing. However, some contend, the markup can be problematic because it results in a customer's cost of credit being determined by something in addition to his or her creditworthiness.

For some customers, the convenience of dealer-offered financing may be worth the cost. But the Cohen study of Nissan lending indicates that blacks are subject to the markup more frequently and in bigger amounts than whites. Similar claims have been made against several other large automakers as well.

Gregory Squires, a George Washington University professor whose research while he was on the faculty at the University of Wisconsin-Milwaukee put pressure on Milwaukee's home lenders to do more business with minorities, said he was not surprised by racial disparity in auto lending.

Squires said he believes that generally, auto dealers "operate on the assumption that blacks are not as sophisticated" as whites, and that women are not as knowledgeable as men, in negotiating for better deals.

Marquette University professor Dennis Garrett, an expert on consumer complaints and marketing, said there probably is "no simple answer" to the markup disparity.

"I've always argued that the solution to these very important but challenging problems are really in the consumer education realm," Garrett said. "We have to continually work to educate consumers better as to how to go about achieving their best interests in the marketplace."

But, Garrett added: "At the same time, while we work on that part of the issue, we also have to be vigilant on the other end to try and weed out those business operators who are, in fact, maliciously trying to really discriminate against certain categories of consumers out there."

The auto association's Williams said he intends to look into the study's findings in an attempt to pinpoint a reason for the gap.

"This association absolutely - underline absolutely - is opposed to racial discrimination," Williams said.

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