Credit crunch in U.S. slams the brakes on Valley car deals

By Don Shilling

Car buyers are forced into larger down payments and longer loans.

Buying a car isn’t as easy as it used to be, at least if you need financing.

Down payments are up. Loan terms are longer, and banks aren’t rolling over old debt into a loan for a new car. All of it’s being scrutinized more closely by loan officers.

“Deals that used to fly out of here don’t anymore,” said Kevin Funk, finance manager at Stadium GM Superstore in Salem.

And if you are looking for a cut-rate lease, don’t bother.

“The days of the $189-a-month Chevy Trailblazer or Jeep Liberty are gone,” said Chuck Eddy of Bob and Chuck Eddy Chrysler Dodge Jeep in Austintown.

Automakers and banks either have abandoned leases or made terms unfavorable, dealers said.

The changes have come recently in the wake of the nation’s credit crisis.

The economy has been thrown into turmoil as a flood of subprime mortgages — special deals for home buyers with marginal credit — led to a wave of foreclosures and soured investments by Wall Street banks.

Much the same had been happening with car financing, said Barry Gonis, general manager of Spitzer Chevrolet in North Jackson. Lenders were eager to make deals that made little financial sense because they could bundle the loans and sell them as securities to investors, he said.

For example, lenders were routinely lending 120 percent to 140 percent of the value of new car purchase. Car buyers would use the additional money to pay off what they owed on their previous cars and pay the taxes on the sales.

Now banks are lending only enough for the purchase of the new car.

Used-car deals are even more difficult, Funk said. Lenders are basing loans on the wholesale value of the car — what dealers would pay at auction — instead of the retail value. That lowers the loan amount and reduces the financial risk for the lenders if the loan defaults. It also means car buyers have to produce a larger down payment.

Terms for car loans are growing longer, dealership officials said. Loans of 60 or 66 months are average, but they sometimes extend to 84 months.

Not much has changed in terms of interest rates, officials said. Buyers with good credit will pay about 6 percent for a car loan, but those with worse credit will be charged more. Interest rates for buyers with marginal credit run between 13 percent and 16 percent, but rates for those with bad credit can run as high as 20 percent or 25 percent.

Buyers are likely to go through a more detailed credit check these days, Funk said. Buyers with a credit score below 640 automatically must present proof of income, he said. In the past, income checks were done on a case-by-case basis.

While financing deals have changed, leasing deals have almost evaporated.

“It’s been a culture shock,” Eddy said.

Leases made up 42 percent of all new car deals in the Mahoning Valley in the first eight months of this year.

Recently, however, automakers have decided they no longer are willing to take financial losses in order to keep customers coming back to dealerships every three years for a new lease, Eddy said.

Funk said buyers are facing monthly payments that are $100 or $150 higher when they finance a vehicle instead of leasing it. Plus, they are taking six-year loans instead of three-year leases.

People who own sport-utility vehicles also can be in for a shock when they come in to buy a new vehicle, Funk said. Values have plummeted, so they have less trade-in value.

“Usually people get mad and go check somewhere else,” he said.

Despite the changes in financing and leasing, the officials said their sales were good last month. Instead of staying out of the market, buyers are coming up with the larger down payments or taking longer-term loans to make deals work, they said.

September sales information for area dealers will be released later this month by the Automobile Dealers Association of Eastern Ohio.

shilling@vindy.com