Credit: Is It Available?
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.
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.
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