Vehicle sales have softened somewhat in Emporia, but money to buy them remains available locally for many area residents, according to people working in the credit and car industries.
Only one of five randomly selected people in the industries said that the national credit tightening had noticeably affected his used-vehicle business in recent weeks.
The local situation contrasts with other areas of the country, particularly the East and West coasts, where news reports describe vehicle sales in a drastic slump and loans available only to people with high credit ratings.
According to a recent article in the national press, auto industry officials predict that up to 2,000 new-car dealerships may have to close. The majority of those are located in large metropolitan areas, where same-make dealerships abound in competition with each other.
In Emporia, people are still buying cars, pickup trucks and SUVs, often with money from local lenders rather than national companies.
“I would say that applications have not dropped off, and I have not seen where it’s been harder for people to obtain (loans),” said Russ Bonitatibus, senior vice president at Lyon County State Bank. “I think the way the prices are now, it seems like the dealers are selling them for quite a bit off MSRP (manufacturer’s suggested retail price)on new ones.”
Ron Carlson, manager at John North Ford, also cited new-vehicle prices in general as a reason some people continue to make purchases.
“If you want a deal on a car, now’s the time to buy,” Carlson said. “The deals are outstanding. For most people, money is readily available.”
Credit has tightened a bit in some areas, he said, but prospects for getting financing are good for many people.
“It’s definitely a little tighter on those with less-than-stellar credit, but a guy who’s made his car payments is gonna get a loan all day long,” Carlson said.
Some buyers in the used-car market, however, are noticing the credit crunch, according to Larry Magsam, co-owner of Crown Vic Auto Sales, one of the area’s oldest used vehicle businesses.
Magsam said that when the stock market began to drop, business slowed down.
“We have noticed it here,” Magsam said. “People are not able to get a loan, even (from) American General Finance. And maybe it was just that one person, but we’re finding more and more people” unable to get financing or backing out of purchasing vehicles ordered.
Magsam said that one buyer was turned down by a credit union and bank in Emporia and, subsequently, by the buyer’s home-town bank in another city.
“Then they came up with a co-signer and still didn’t make it,” Magsam said. “Even American General, and they really need a vehicle, really bad.”
Crown Vic does not offer on-the-spot financing, he said, and the criteria for some used-car financing can be stringent.
“If there’s too much debt-to-income ratio, they just don’t do it,” Magsam said. “I guess they’re just being careful. We’re finding more and more people walking in and that’s the only question they have, ‘Do you finance?’”
Sales are continuing, he said; it’s the financing for some buyers that has been difficult.
Buyer interest in pickup trucks and large sports utility vehicles is growing again, after taking a deep dip when the price of gasoline began to surge.
“Four months ago, six months ago, you couldn’t give an SUV away,” Carlson said. “... (T)he full-sized sport utility went down into the funk 60 days ago and now they’re back up again. It’s really weird.”
The overall vehicle market locally does not seem as strong as it was before credit-card debt, sub-prime loans and plunging stock prices complicated economic life for most Americans. And, as often happens, the election year contributed its own slowdown in major purchases, as voters wait to see what happens to government at the national level.
“Every national election the car business gets a little bit of a funk. It really does,” Carlson said. “That’s just a normal deal.
“So you’ve got three going on at the same time. In a nutshell, our business has softened and our traffic has softened. ... (Buyers) read where there’s no money available and they know about the stock market and they’ve had a wait-and-see attitude.”
At John North Ford, which also sells Mercuries, Lincolns and Nissans, financing vehicle purchases is done through both local and national banks.
“Ford Credit’s still loaning money,” Carlson said. “We still have a national presence with Ford. They’ve still got plenty of money to loan and are still doing it.”
Some national banks have cut back a bit for some potential buyers, but people with solid credit are able to borrow money for vehicles in Emporia, he said.
“A guy that’s paid his bills, there is no problem getting a loan and getting a good interest rate,” Carlson said.
A shaky credit history makes borrowing more difficult, both auto and financial representatives agree.
General Motors’ financial services arm, GMAC, has toughened its lending policies, according to an announcement from GMAC on Oct. 13. The majority of GMAC stock, 51 percent, is owned by Cerberus Capital Management, which also owns 80.1 percent of Chrysler Holding LLC.
The GMAC news release stated:
“GMAC Financial Services today implemented a more conservative purchase policy for consumer auto financing in the United States as a result of the lack of stability in the global capital and credit markets. The changes include limiting purchase to contracts with a credit score of 700 or above. Additionally, the company will restrict contracts with higher advance rates and longer terms.”
Experian, a national credit-ranking and tracking service, considers 692 as the average credit score.
Carlson said he believes that the availability of loan money in this area is due, in part, to a more conservative attitude toward money and borrowing.
“I think the biggest problem is some of the people on the coast lived way beyond their means,” Carlson said. “They’ve got a lot of credit card debt ... and credit card companies are tightening up and you’ve got some lenders that have made some bad loans — and I’m talking nationally here.”
Local lenders tend to give credence to factors beyond credit scores.
Bonitatibus said that LCSB applies the “5 Cs of Credit” when its loan officers consider applications: capacity (to repay), collateral, character, credit history and capital.
“We kind of look at a number of things,” Bonitatibus said. “I think you’re seeing more of those on the national side, maybe the East or West coast, that are cutting back. But they may be using a scoring module” to make loan decisions. “They may have changed their parameters.”
If something has changed on auto loans at LCSB, it is vehicle pricing.
“(We) may be looking at pricing a little differently because of the volatility of the vehicle market, not anything to do with the credit market,” Bonitatibus said. “The vehicle values have dropped quite a bit, especially SUVs and trucks.”
Loans for older vehicles also may be reflecting shorter terms than in the past because of the pricing issue.
“But as far as the credit side, we’re still doing the same thing we’ve been doing for years.”
Bonitatibus mentioned that because of the drop in prices, particularly for SUVs and pickup trucks, some borrowers have found themselves owing more on their vehicles than they are worth.
“People can’t trade out of their bigger vehicles because of their negative equity,” he explained.
People also are more likely now to finance used vehicles, rather than new vehicles, through local lending institutions, if the buyers are qualified.
“We’re not the manufacturer financing their own inventory,” Bonitatibus said. “It’s kind of hard to compete with 0 percent financing.”
So far, it seems that local customers holding vehicle loans are continuing to pay them on time.
“I can’t speak for everyone, but for us, I don’t see a big influx of repossessions at all,” Bonitatibus said.
Zack Lake, loan officer at the Emporia State Federal Credit Union, echoed Bonitatibus’ remark.
“Our delinquency list is very, very minimal. We pretty much have zero delinquency,” Lake said. “Car loan balances are remaining stable and there’s no significant growth or loss. It’s a pretty even keel.”
Lake said that the credit union looks at each loan personally, not making decisions based strictly on credit scores.
“We look at the whole picture. We obviously want to make sure they can make their payments, afford their loans,” Lake said.
Credit union lenders also work with customers, he said, to make smarter decisions on their purchases.
“We definitely try to advise them on what we view as a smarter choice,” Lake said. “We don’t want people to get in over their heads and then can’t afford it two years down the road.”