GMAC's new lending restrictions called 'scary'

[Miss Mia]

GMAC's new lending restrictions called 'scary'
Want a loan? Credit scores over 700 required

DETROIT -- GMAC Financial Services said yesterday that it will only lend money to prime borrowers with credit scores of more than 700.

The restriction would rule out one out of four new car loans, according to one recent report.

Dealers say they may have trouble finding alternative lenders if they funnel all their best contracts to GMAC.

"This is scary," said Jerry Seiner, president of Jerry Seiner Dealerships in Salt Lake City. "Who is going to step in and buy these contracts?"

Seiner says other auto lenders want dealers to send them a mix of contracts --including the most creditworthy. "Banks don't want to buy the contracts unless you send them the borrowers with 700 scores and above," he says.

In a statement, GMAC officials attributed the new policy to "the lack of stability in the global capital and credit markets."

-SNIP-

For the first seven months of 2008, prime customers with scores exceeding 700 represented 74.3 percent of the U.S. new auto loan market, according to information services company Experian Automotive. A year ago, prime borrowers made up 71.1 percent of the new auto loan market.

And the move could have a greater impact on the used car market. According to another Experian report, 56.5 percent of all vehicle loans qualified as prime during the second quarter of 2008. That's compared with 62.2 percent during the second quarter of 2007. In this study, Experian defined prime as a credit score of 680 or higher.

Besides the new credit score limits, GMAC said it will restrict contracts with higher advance rates and longer terms. Last week, GMAC increased by 75 basis points the rate it charges dealers for providing consumer automotive financing with no incentives.

-SNIP-

Sorry, I think this is a subscription article, but I posted the most relevant parts of the article. 

[Miss Mia]

Toyota's October surprise
What credit crunch? Toyota's captive brags in a big ad blitz that it's ready to do deals

LOS ANGELES — Rich and powerful Toyota, stung by a stunning collapse in sales last month, will spend a ton of money in October on a nationwide TV blitz that brags about the company's captive finance arm.

The message: In a credit-crunched America, Toyota Financial Services has plenty of cash to lend. Executives say they're trying to do what General Motors' "Keep America Rolling" campaign did after 9/11 — get the country rolling again.

The "Saved by Zero" ad campaign began Oct. 2. It promotes a 0 percent financing program on 11 vehicles. Dealers say Toyota will shell out at least $250 million this month to cover the cost of the subsidized loans and to fill the airwaves with commercials.

Calling it "mind-boggling," one dealer who asked not to be named said he doesn't believe Toyota has ever spent so much in a single month on incentives and advertising.

"We thought they had dried up on us," said Dave Conant, a large-volume Toyota dealer in Los Angeles. "But they said they have plenty of money and would still be strong and aggressive on deals that make sense."

To get regional dealer ad associations to deliver the same message — that Toyota Financial is doing deals — the automaker will pay out 50 cents for every dollar that associations spend in October. That's up from the 32.5-cent rate ad groups normally get.

"This is big, really big," said Fritz Hitchcock, another large-volume L.A. dealer.

Toyota Division dealers need the help. Sales plunged 31.2 percent in September. "Traffic is bad," said Conant. "We hope this messaging will help."

-snip-
Borst told dealers that Toyota Financial is one of only two AAA-rated auto lenders. The other is GE Capital. "We tell our dealers we are their partners in good times and in tough times," said Borst. "This market certainly gives us the opportunity to practice what we preach."

Said Hitchcock: "Borst told us they're loaning tighter, but at least they have the money."

The money comes from the parent company's deep pockets in Japan, said Mark Oline, an analyst at Fitch Ratings. "They are extraordinarily well-capitalized and liquid," Oline said. "They have extremely strong ratings, and that allows them to borrow just about anywhere in the world."

-snip-

Again, this is another subscription article, but I posted the most relevant parts.

[NHSparky]

I have only purchased ONE vehicle in the last 20 years that did NOT get financed via Navy Federal, and going with that finance corp (Ford) was the biggest mistake I ever made.  I've heard similar horror stories from others about GMAC, Toyota, etc...

Bottom line--I walk into a place knowing what I'm going to pay and what my trade-in (if any) will/should bring.  If they can come in under that, I give the dealer the draft given to me by NFCU.  If they can't, I find a dealer that can.

[DixieBelle]

Credit Union Credit Union Credit Union

FWIW I don't find it "scary" that bankers only want to loan money to those who have demonstrated a good track record.

[jtyangel]

I have only purchased ONE vehicle in the last 20 years that did NOT get financed via Navy Federal, and going with that finance corp (Ford) was the biggest mistake I ever made.  I've heard similar horror stories from others about GMAC, Toyota, etc...

Bottom line--I walk into a place knowing what I'm going to pay and what my trade-in (if any) will/should bring.  If they can come in under that, I give the dealer the draft given to me by NFCU.  If they can't, I find a dealer that can.

Yep, we worked with a draft for the first time ever this last time(I know, we just never did it that way before) and it was sooo much quicker, easier, etc. I won't do it any other way again.

[jtyangel]

Credit Union Credit Union Credit Union

FWIW I don't find it "scary" that bankers only want to loan money to those who have demonstrated a good track record.

I dont' either. The sad part about this though is there may be people rebuilding their credit that have nothing to do with the problems that brought it to this point that will not be able to get a loan to continue that rebuilding process. It's not impossible though, just the rates are a bit higher at first.  Even considering that, getting the loan figured out ahead of time is the way to go.

[overlord]

Meh, I pay cash anyways.  I have no car payment and no credit cards.  The only "debt" I have is my house payment.

[DixieBelle]

^Ditto jty. I feel for those honest folks caught in the middle. There are always people like that in a credit crunch or economic downturn. The beauty of it (to me at least) is that you can pick yourself up and dust yourself off if you're willing to put in the elbow grease and plan for the future.

And let's face it, America is addicted to credit. My grandparents never would have dreamed of having the kind of debt most American families have today. They came from a different era and credit wasn't thrust in your face like today. It's a two way street though. The crediters are like drug pushers and the consumers are like addicts. Harsh analogy, but it's a dysfunctional cycle to me. We live in a world where you can put a pack of gum on a Visa card (not debit - credit - which I've seen people do).

[Jim]

Scary for dealers I guess.

[Miss Mia]

Yep, we worked with a draft for the first time ever this last time(I know, we just never did it that way before) and it was sooo much quicker, easier, etc. I won't do it any other way again.

Drafts are pretty common at the dealership.  While most customers don't use them, one will every now and then.  The vast majority of drafts thats we do are with the wholesalers.

Credit Union Credit Union Credit Union

FWIW I don't find it "scary" that bankers only want to loan money to those who have demonstrated a good track record.

I use a credit union.  When I financed my vehicle I got a better rate through Volkswagen Credit than what the credit union was offering.  But it's always good to check rates at your bank or credit union and see what the dealer is offering. 

[paladin0]

I have a great credit score, I've financed two cars though Ford Credit, one at 1.9% the other at 0%. Nobody could beat those rates and I never had an issues with Ford Credit.

Paladin0

[Lacarnut]

The last car I purchased was thru Capital One on the Internet. Called them up, they overnight-ed the check, I went to the dealer, haggled on the price and I filled in the amount for payment. Did not have to fool with some dumb ass at the bank/ credit union or the dealer trying to rip me off. Very pleasureable financing experience.

Glad to see that lending institutions are wising up. People that are upside down on a car loan or do not have good credit should save up instead of of borrowing money that they may not be able to pay back. Also, ARM's and 2nd mortgages should be banned. Sure as hell did not have any of this funny business financing when I bought my second home in the 70's. I had to come with a 10% down payment.

[Airwolf]

And how long will this last? They already are sucking ass at car sales and now they want to shut off more money to people. The local GM dealer here in town has maybe 30 cars left on the lot,not because of huge car sales but because ofthe lack of them. I drove by at 6pm tonight and the place was closed for the day.

[Miss Mia]

And how long will this last? They already are sucking ass at car sales and now they want to shut off more money to people. The local GM dealer here in town has maybe 30 cars left on the lot,not because of huge car sales but because ofthe lack of them. I drove by at 6pm tonight and the place was closed for the day.

That's the scary part.  1 in 5 dealerships are expected to close.  1 in 10 jobs are related to the car industry.  Dealerships are feeling the crunch and some banks are pulling floorplanning on dealerships.  (Floorplanning is how a dealership finances their inventory)  It's going to be a bumpy ride. 

[Miss Mia]

Am I the only one shocked, that 71-74% of new car buyers have 700+ credit scores!  I would certainly never expected figures to be that high! 

Yeah, that was surprising.  I doubt that takes into account the tote-the-note lots.

[jtyangel]

^Ditto jty. I feel for those honest folks caught in the middle. There are always people like that in a credit crunch or economic downturn. The beauty of it (to me at least) is that you can pick yourself up and dust yourself off if you're willing to put in the elbow grease and plan for the future.

And let's face it, America is addicted to credit. My grandparents never would have dreamed of having the kind of debt most American families have today. They came from a different era and credit wasn't thrust in your face like today. It's a two way street though. The crediters are like drug pushers and the consumers are like addicts. Harsh analogy, but it's a dysfunctional cycle to me. We live in a world where you can put a pack of gum on a Visa card (not debit - credit - which I've seen people do).

Oh, I agree with you. I'm just squishy like that cause some of these peeps have already been delaying big purchases and quite frankly DO need them, but had to wait to pull credit scores up to begin with and once they have it is pulled out of their reach again. I hate that they are the ones suffering, like the rest of us I might add who will be footing this bill, for people who really just didn't give a shit--probably people in and out of bad debts who just continue the cycle because they know they can get out of it eventually. Some people really do get into crappy situations because of life circumstance and not because of poor planning. One can't always plan on mental health issues of a spouse for example or the birth of a child with disabilities and both of those can be a net suck on savings. They won't be the ones looking for a bailout though because they generally do what you said, Dixie, and pull themselves up and start over again...quietly. This just made it a little hard for thsoe legitimate people as all--the old bad apple ruining it for the rest type of thing. I doubt it will be the 'legits' who will make a stink over this though.  All that said, this was necessary right now.

[Lacarnut]

Am I the only one shocked, that 71-74% of new car buyers have 700+ credit scores!  I would certainly never expected figures to be that high! 

The bad part is that 1 in 4 are upside down on the vehicle that they trade-in to purchase a new one. Dumb, dumb, dumb.

[DumbAss Tanker]

As I tell people looking at bankruptcy, you can always borrow money, the question is going to be how much you'll have to pay to do it.

[Airwolf]

That's the scary part.  1 in 5 dealerships are expected to close.  1 in 10 jobs are related to the car industry.  Dealerships are feeling the crunch and some banks are pulling floorplanning on dealerships.  (Floorplanning is how a dealership finances their inventory)  It's going to be a bumpy ride. 

Our town had a dealer for each of the big 3 for as long as I can remember. A few years ago when I went to the lot of the only remaining dealer out of the three we were told that the reason the other two folded was because of titles that were not properly regestered and other things that led the cops to come in and close them down. The last dealer that has new cars isn't doing so well and rumor has it that they will or are being sold to a car dealer that has 7-8 dealerships in Nebraska.

[NHSparky]

The fact that the UAW is killing jobs is only half the issue.  A lot of dealerships I've dealt with are just plain crooks...

[NHSparky]

What does the UAW have to do with GMAC corporate financing? 

GM (among other car makers) is shooting themselves in the foot so many times, they've run out of limbs.  Union contracts which add 15-20 percent to the price of each car for one.  Dealers who mark up and do stuff even to the point I've walked out of a dealership.

Oh the stories I could tell ya.  Sorry about the confusion.  No they are not one and the same entity, but they ARE tied to GM, etc...

[Miss Mia]

If 70+% have 700+ credit scores, does it really matter if they're upside down on their trade-in, when they purchase a new one?

Yes.  You can only roll over so much negative equity into a new car loan.  Loans are getting tighter so that even before when you could possibly roll $5,000 negative into a new loan, you just can't do that now.  The banks don't want to roll any negative into a new loan.  Customers will have to come up with more money down to make up for the negative.  It's harder on those that have a gas hogging vehicle and are trying to get into something more fuel efficient.  Even if you have an excellent credit score you may not actually have the extra cash to put down.

[Miss Mia]

Our town had a dealer for each of the big 3 for as long as I can remember. A few years ago when I went to the lot of the only remaining dealer out of the three we were told that the reason the other two folded was because of titles that were not properly regestered and other things that led the cops to come in and close them down. The last dealer that has new cars isn't doing so well and rumor has it that they will or are being sold to a car dealer that has 7-8 dealerships in Nebraska.

In all the stories I've heard of dealerships, not registering/titling vehicles isn't one I've heard.  PM me and let me know where this is, I'm interested to see if I can find out more. 

[Chris]

Bill Heard Chevrolet is not doing so well.  I wonder if there is an update to this story, but I haven't seen it yet.

http://jalopnik.com/5056225/exclusive-inside-the-fall-of-bill-heard-chevrolet-the-worlds-largest-chevy-dealership

[NHSparky]

In all the stories I've heard of dealerships, not registering/titling vehicles isn't one I've heard.  PM me and let me know where this is, I'm interested to see if I can find out more. 

One that a Toyota dealer tried on me was giving me financing at 5 percent for 5 years, then coming back a week later and telling me my credit had been "declined" and trying to give me financing at 11 percent for 6 years.  I took the truck back with a copy of the California Civil Code showing where that was quite in fact illegal and that their only choices were to honor their original contract or take their truck back with the 500 miles I had already put on it (so now they'd have to sell as used) and give me back my old car and down payment.

Needless to say, I kept the original contract, and then I went over to NFCU the following week.  That's when I found out about the drafts.  Have used those since.  That way I know what I can afford, what the payments will be, and there's a lot less haggling.