Chase Auto Finance Dealer Agreement

Posted on Sun, Oct. 05, 2008

Car loans harder to get By MIKE SPECTOR The Wall Street Journal

The era of easy auto loans has come skidding to a halt. Mortgages were among the first consumer products to be hit by the credit-market freeze. Now car loans and leases are drying up as dealers, auto-finance companies and other lenders are having trouble finding money to lend to car buyers. The upshot: Those with less-than-stellar credit are getting shut out of loans, and even some so-called prime borrowers are having trouble getting financing. "You have to just about be walking on water to get financed," said Mike Jackson, chief executive of AutoNation, the largest U.S. chain of dealerships. He added that the subprime market is "basically almost closed" but "even with our prime customers, banks are looking for a reason to say no." AutoNation dealerships sold 532,862 light-duty cars and trucks last year, and this year, amid the credit crunch, that number could fall by as much as 20 percent, Jackson says.

What it means For shoppers with good credit, financing is still usually available, especially among healthier foreign automakers like Toyota Motor Corp. and luxury companies like BMW. But overall, financial institutions have become less likely to lend. Credit unions and so-called captive-finance companies — the lending arms of major automakers — are likely to offer the best chance of getting a loan. Paying down debt to raise your credit score could also help. And car shoppers should consider turning to the used-vehicle market if they can’t get financed, or at least settle for a less-expensive car. These days, though, even the used-car market can be hard to negotiate. Laura Ryan-Day of Austin says she was rejected four times by Wells Fargo for a loan on a 2006 Honda Element, even though she has no credit-card debt and rents her home, and her credit score is above the national average. Her income as a psychotherapist has been consistently high, she says, and she earned an additional $30,000 last year after she started her own practice. After she found the car, Ryan-Day, 32, thought getting a $13,500 loan through Wells Fargo, where she has her checking, savings and two credit-card accounts, would be a snap. "I’ve had friends take out loans before for a bigger amount with much less hassle," she said. Ryan-Day says that Wells Fargo’s initial denial stemmed from confusion over her tax returns, which the bank said hadn’t been filed. After she found the forms and resubmitted, the bank offered a series of objections to her income and expenses related to her new practice, she says. Then, nearly two weeks after first applying for the loan, she received a call from Wells Fargo Financial, a subprime unit of the institution. She Page 1 of 2

was quickly approved for a 12.24 percent APR loan for $14,500, after taxes and fees. "I really needed the car," said Ryan-Day. "What else was I going to do?" She hopes to pay the loan off in six months. "We work hard to ensure the best pricing for our customers while managing risk for the company," a Wells Fargo spokesman said. "Beyond that, we do not comment on customer relationships because they are confidential."

Getting approval As of Sept. 20, about 64 percent of auto-loan applications were getting approved, down from 83 percent during the same period last year, according to CNW Marketing Research, a research firm in Bandon, Ore. Subprime-application approvals suffered a dramatic drop, falling to about 23 percent from 67 percent a year ago, but even near-prime and prime approvals fell somewhat. When they do get a loan, car shoppers are likely to get less cash from lenders, requiring them to put more money down to borrow — sometimes 10 percent to 20 percent of a car’s value. The average down payment on a roughly five-year auto loan in August was $3,067, up from $2,435 a year earlier, according to Edmunds.com, an auto-research firm. It’s only the second time the figure has exceeded $3,000 in nearly four years. JPMorgan Chase’s Chase Auto Finance unit is asking buyers for higher down payments and more documentation for loans, a spokeswoman says. Other standards implemented in the past year or so: no subprime loans longer than 72 months and capping all new-vehicle loans at 84 months. Americredit, a big subprime auto lender, expected to originate about $10 billion in loans between July 2007 and June 2008 but fell short. It now expects to originate about $3 billion for the year ending in June 2009, a spokeswoman says. The firm recently reached a financing deal with Wachovia for auto-asset-backed security notes it expects to issue in the future. Customers can expect interest rates on Americredit car loans to be 2 percentage points higher than a year ago, a spokeswoman says.

Leasing scales back Customers used to leasing their vehicles will also have to grapple with a tougher financing environment. Detroit’s automakers have scaled back leasing amid big losses on SUVs, which they relied on more than their foreign competitors. Chrysler has stopped leasing altogether. One piece of good news: With car sales plunging across the industry, you should be able to at least nab a good price. Overall, U.S. sales of light-duty cars and trucks were down 26.6 percent in September from a year earlier, according to Autodata Corp., a research firm in Woodcliff Lake, N.J. The best deals are being offered by General Motors, Ford and Chrysler, whose sales have suffered the most. GM’s employee-discount program ended last month, but the automaker plans to offer discounts of up to $7,000 on some models, the company said Wednesday. Page 2 of 2