Wednesday, February 15, 2012 | Edited by Daniel Moores
||Credit Thaw Driving Auto Loan Approvals, Sales
Three years ago, credit was so tight that the owner of a legal firm with a $400,000 salary and a very good credit score of more than 700 couldn't get financed to buy the car he wanted from Michael Mosser's dealership.
"The world is upside-down compared to then," said Mosser, general manager of Chevrolet and Cadillac stores in Ann Arbor, Mich. "Today, somebody with a 500 credit score, I can get approved and in a Malibu," which starts at $22,110.
Lenders resisted extending credit to car buyers when the mortgage market collapsed in 2008, helping push General Motors Corp. and Chrysler LLC into bankruptcy and sending U.S. sales to the lowest point in almost three decades.
Amid a slow housing market, auto demand is rebounding, spurring lenders from Bank of America Corp. to Capitol One Financial Corp. to approve buyers faster and at better rates to compete for a piece of an expanding market.
"Banks have had to look elsewhere for growth opportunities, and auto has been one of the nice spaces over the last couple years," said Curt Beaudouin, a bank analyst for Moody's Investors Service in New York. "The credit experience in terms of losses has been very good in recent times. It's never gotten out of hand. Right now, it's basically good for everybody in the industry."
U.S. light-vehicle sales rose 10 percent to 12.8 million last year. That momentum continued as automakers sold cars and trucks in January at the fastest pace since the U.S. government's "cash for clunkers" program in August 2009, according to Autodata Corp.
Capitol One boosted new-vehicle loan originations by 35 percent in the third quarter and 75 percent in each of the first two quarters of 2011 from the year-earlier periods, according to data provider Experian Automotive.
That put Capitol One ahead of Bank of America in market share for new-vehicle loan volumes and closer to Ally Financial Inc. and Wells Fargo & Co.
Capitol One revamped a program for select dealers late last year that gives them perks such as faster approvals and exceptions for customers with borderline credit scores, said Kevin Borgmann, president of the McLean, Virginia-based lender's auto-finance unit.
The company's speed is "a big competitive advantage for us," Borgmann said.
Capitol One decides "the majority of applications for any dealer that does business with us within 30 seconds. Dealers find a lot of value in that because they can go out and sell the next car."
Capitol One is among several large banks creating dealer-specific programs to take advantage of a market with growing sales and still-low delinquency rates, said Melinda Zabritski, director of automotive credit for Experian Automotive.
"You've got pretty fast decisioning going on in the market," Zabritski said. "When the market pulled back, the instant decisions really slowed down. You had more manual reviews. That's one of the things you're starting to see change is you're going back to the automatic approvals. For a while, you really were only doing automatic declines."
Lenders also are protected by a strong wholesale market, Zabritski said.
Used-vehicle prices, which are near record highs because of short supplies, may increase 1.8 percent this year, according to Jonathan Banks, an analyst with the National Automobile Dealers Association's Used Car Guide.
Higher prices for used cars reduce the loss a lender takes in the event of reselling a repossessed vehicle.
Faster decisions on auto-loan applications are "clearly something you would expect as credit becomes looser," said Don Johnson, General Motors Co.'s vice president of U.S. sales. "Consumers are deleveraging, their scores are getting better, so those automated systems logically should be turning more positive with more and more yesses."
The ratio of borrowers who fall behind on their auto loans by 60 days or more will remain the same this year as in 2011, according to TransUnion LLC.
When new data is available, they could show that delinquencies fell to 0.51 percent at the end of last year, from their peak of 0.86 percent during the recession, TransUnion said in a report.
GM Financial, formerly known as AmeriCredit Corp., the subprime lender that GM acquired in 2010, has provided competition for Ally Financial, GM's former financial arm under the name GMAC Inc.
Wells Fargo also is "aggressively going after our dealers' business," Johnson told analysts and reporters on a Feb. 1 conference call. Subprime borrowers are considered to be a higher-than-normal credit risk.
Ally, the top lender in new-vehicle financing this year, let its market share go to "almost zero" when liquidity dried up in 2008, Chief Executive Officer Michael Carpenter said.
"There were months in 2009 where our share of retail was zero because we simply couldn't fund it," he said. "If you roll the clock forward and get to the middle of 2010, we were back with higher share than we ever had as a captive" lender to GM.
AutoNation Inc., the largest retailer of new vehicles in the U.S., is forecasting U.S. auto sales will rise to about 14 million this year.
Mike Jackson, chief executive officer of the Fort Lauderdale, Fla.-based company, said in an interview last month that available financing combined with better selection of cars from Japanese automakers and customers wanting to replace aging vehicles will spur demand.
The average age of U.S. cars and trucks has risen to a record 10.8 years, according to R.L. Polk & Co.
Contrast with mortgages
"People pay for their cars before they pay for their houses," said Mike Maroone, AutoNation's chief operating officer. "They couldn't afford to lose transportation because it ties right to their ability to work."
Wells Fargo, JPMorgan Chase & Co. and Bank of America are among the lenders with whom AutoNation works most closely on financing customers with prime and near-prime credit, Maroone said.
GM Financial has been among the most aggressive in lending to subprime borrowers, he said.
Ally Financial, based in Detroit, has told investors it won't file for an initial public offering until issues tied to faulty home loans are resolved and that it won't give a "blank check" to its mortgage unit, which has teetered near bankruptcy.
Mosser, the Chevy and Cadillac dealer, said his daughter is struggling to buy a $105,000 condo. While she's putting 20 percent down and he's going in on the mortgage with her, it has taken more than 30 days for the bank to approve.
"I could walk out of this dealership in 20 minutes with a brand-new, $80,000 Escalade," he said. "And you're going from a car loan, which is somewhat unsecured, to a home, a property, which is secured. It's kind of crazy."
(Source: Automotive News, 02/07/12)
||Dealers Looking Forward to a Good Year in 2012
A survey by Ally Financial revealed that nearly half the dealers polled at the recent 2012 National Automobile Dealers Association (NADA) Convention expect their sales to increase by 10 to 20 percent this year, and almost another third are even more bullish in expecting sales to grow greater than 20 percent.
Nearly 75 percent of dealers surveyed expect consumer confidence to be the key in sustaining sales momentum, surpassing the availability of incentives or vehicle inventory as driving factors, according to Ally Financial. About 60 percent said the credit profiles of customers coming into their showrooms are improving, while 53 percent said they expect the small-car vehicle segment to experience the most growth this year.
"Given improved consumer confidence, full-year sales for 2012 could surpass the 14 million-unit level in the U.S. and position the industry for even greater growth in 2013," said Tim Russi, Ally's executive vice president for North American auto operations. "This could factor into dealer decisions on facilities, hiring and ordering."
Full survey results:
1) What do you expect to be the key factor in sustaining sales momentum in the industry in 2012?
a. Consumer confidence -- 74.83%
b. Incentives -- 16.33%
c. Vehicle inventory -- 8.84%
2) What vehicle segment will experience the most growth in 2012?
a. Small Cars -- 52.38%
b. Mid-size/Large Cars -- 24.49%
c. Trucks/Crossovers/SUVs -- 23.13%
3) What is your overall outlook on new vehicles sales in 2012?
a. Positive -- 92.52%
b. Negative -- 1.36%
c. Flat -- 6.12%
4) Are you planning for increased sales in 2012 versus last year? If "Yes," by how much?
a. I do not expect an increase -- 0.68%
b. 0–10% -- 21.77%
c. 10%–20% -- 46.94%
d. 20%–30% -- 22.45%
e. 30%–40% -- 6.12%
f. More than 40% -- 2.04%
5) Would you describe the credit profiles of car shoppers at your dealership as improving, diminishing or staying flat?
a. Improving -- 59.86%
b. Diminishing -- 4.76%
c. Staying flat -– 35.37%
6) What is the top purchase driver for your customers?
a. Fuel economy -- 14.29%
b. Price/monthly payment -- 68.71%
c. Styling -- 12.24%
d. Technology/options -- 4.76%
(Source: F&I Magazine, 02/09/12)
||Survey Recognizes Women-Friendly Dealerships
'A Genuine Concern' and 'a Nuance of Hospitality' Mark the Best
Buying a new car can be an unsettling experience no matter who you are, but it's traditionally been that much tougher for women.
"When I started looking for my last car, the first dealer I went to told me to come back when I could bring my husband with me. He clearly didn't think I was smart enough to do it myself," recalls Alice Hissler, a single PhD scientist at a major Michigan university.
Hissler is by no means alone, and women are more likely than men to express frustration at the car buying experience. But that's beginning to change, driven by automakers, retail trade groups and women themselves who are using word-of-mouth and social media to get the word out about which dealers to patronize and which to avoid.
And they have the muscle to do it considering women now account for 51% of the cars purchased in the U.S. and influence 96% of sales, says Delia Passi, CEO and founder of WomenCertified and former publisher of Working Mother magazine. WomenCertified has just published a new survey that looks at what dealers should do to satisfy women customers and identifies some of the best in the country from the distaff perspective.
"Car buying is often viewed as a male-dominated activity," said Passi, adding that, “Our goal is to identify and reward the dealerships that meet and exceed women's expectations for the car buying process and encourage the industry to better serve their needs."
The new study, she notes, was done in cooperation with the Wharton School of Business, and was specifically constructed to focus on what women car buyers were looking for when shopping for a new vehicle. It not only looked at the car buying process but also the service experience, where women often find themselves facing the harshest treatment.
The best dealers, the survey found, show "a genuine concern for the customer," and are likely to offer a "nuance of hospitality" in everything they do, stressed Passi. They're likely to listen as much as talk, and clearly understand the specific needs and desires of each individual consumer.
They're also likely to make the showroom and service bay friendly places to spend time, especially for women who might have children in tow. Top-ranked dealers routinely offered such niceties as good coffee, places to relax and even play centers for children. Some would even provide transportation service for a customer who might, said Passi, want to run errands while waiting for a car to be serviced.
"They put themselves in the shoes of a woman customer," she suggested, adding that those dealers were also less likely to make a woman feel pressured.
Passi contends that the best dealers are likely to be driven "top-down," and often -- but not always -- have women in top management positions. They almost always do have women employees at all levels in the dealership.
The survey, which will be published annually, identified a score of top, women-friendly dealers across the country.
To be added to the list required a strongly positive recommendation from at least nine of every 10 women customers surveyed who had previously used that dealership. For the complete list, click here.
Beyond the initial sale, Passi stressed that it simply makes good sense to ensure women shoppers are happy. They're more likely to not only come back for another car later on but also to return to the dealership for service and other needs. According to the survey, 80% of respondents returned to the top-ranked dealerships, up from 60% for those who didn't score as well.
(Source: The Detroit Bureau, 02/13/12)
Daily Sales Tip: Include a Call to Action
Numerous studies have shown that salespeople who engage prospects on a regular basis are in a much better position to win their business.
With that in mind, each presentation should focus on the customer's needs, as opposed to the salesperson's products.
More importantly, capitalize on the impact of the presentation by leaving the prospect with some type of call to action.
It gives salespeople an ideal way to follow up after the fact, by asking, "Have you had a chance to look over the materials I sent?"
It's also an ideal way to transition from the initial stages of the selling process into a conversation about how your company can best serve the prospect's needs.
Source: From The Challenger Sale, by Matthew Dixon