Credit Crunch? Or Consumer Confidence Gap?

As the Economy Dips, Is This a Good Time To Buy a Car?

In these confusing and tumultuous times, we keep hearing the same question from consumers: "Is this a good time to buy a car?"

This question seems to have two parts to it. "Can I get a good deal now?" And closely linked is the implied question, "Could I even get approved for a car loan?"

It's understandable that people would be worried now, with the Dow recently dropping to new lows. Auto repossessions are up 10 percent this year and car loan delinquencies are also on the rise.

But those who assume the housing market woes translate directly to car loans are off track. While the collapsing housing market has caused problems for the automotive sector, there are significant differences between a home mortgage and automotive financing.

Looking for guidance for car buyers who might be on the fence about such a big purchase, we called leading experts in the automotive field. From GM to Ford and Chrysler, from car dealers to consumer advocates, we took the pulse of the market.

Why Are Car Buyers Staying Away From the Dealership?

One Detroit industry analyst, who asked not to be named, said that "the issue isn't obtaining credit. The issue is that people are scared to death. Unless I absolutely needed a car, I would just batten down the hatches and wait this thing out."

But others disagreed. Mike DeVille, general sales manager at Goudy Honda, in Alhambra, California, said consumers' fears are "media driven. It's just the customer's perception that there is a credit crunch. The person with a 550 [credit score] is still getting a car."

GM spokesman John M. McDonald agreed: "[A lack of consumer] confidence is what is driving the car market right now." With all the bad news, "it is tough to feel comfortable saying 'I'm going to go in today and buy a new car.'"

Still, there are people who are either unaffected by the market, or absolutely need to buy a car. Will there be credit available for their car loans?

Can I Get a Car Loan?

Car buyers wanting to purchase domestic cars will find that financing avenues have changed, but are still available.

McDonald said GM has offered many incentives, such as zero percent financing, for buyers coming off leases to help them purchase a car. Earlier this year, GM and other domestic leasing programs were cut back or ended due to falling resale values on trucks and SUVs.

Consumers wanting to buy a Chrysler "can still get credit for loans," said Stuart Schorr, senior manager, Sales, Mopar and Dealer Communications. But he did admit that "it has just gotten tougher and more expensive in general. But to combat that we are offering discounted loans."

At Toyota, Mike Michels said, "Customers with good credit can still get a loan. Besides, if you look at the affordability index [for car buying], it is the best it's been since 1979."

Low- and zero-percent financing programs are available from GM, Toyota, Ford and other manufacturers. Check our Incentives and Rebates page for current offers.

How Have Credit Requirements Changed?

Oren Weintraub, president of Authority Car Buying Specialists, a concierge car buying service in the Los Angeles area, arranges financing for his clients. He has seen lending practices tightening recently. Still, he has been able to get approval for all his clients (which are, he admitted, mostly upper credit tier borrowers).

"If you have perfect credit, you won't have any trouble with approval," Weintraub said. "But for people with glitches in their credit, the banks are requiring more 'stips' [stipulations] such as proof of employment."

"The person with 700 credit and above will not have any change," said Jesse Toprak, executive director of industry analysis. "The people on the B and C credit tiers will most commonly get the reply, 'You have to come up with more of a down payment.'" He noted that the average down payment recently rose from $2,200 to $3,000.

Mike Stoller, a spokesman for the giant lender GMAC, said consumers are in a mode where playing it safe is important. "High loan to value transactions are being replaced with a greater need for investment by the consumer," he said. "Certainly, looking at employment history is part of our process. But people who take care of their credit are in an advantageous position. "

McDonald, from GM, added, "If you can put more money down, or offer a good trade-in, that puts you in a stronger position. This is something people haven't thought of in the past because there were so many zero down offers."

Is It a Good Time To Buy a Car?

If you are really asking, "Are there good deals out there?" the answer is an emphatic "yes." Said a Detroit automotive analyst, "if you have good credit, and you go to a car lot, they will kiss the ground you walk on."

"If you're staying away because you think you can't get financed or don't think we have the cars you want, think again," said Michels. "It's a fabulous time to buy a car." He noted that Toyota has recently increased its inventory of the fuel-efficient 2009 Toyota Yaris and the ever-popular Corolla.

But Toprak suggested that the old saying, "Don't buy the deal, buy the car," was still sound advice. In other words, don't just buy a new car because you hear there are killer deals out there. Buy a car if you need one.

And Weintraub added a further note of caution: "Look out for the salesman who hasn't made a commission for awhile — he could try to pull one over on you."

Car Buying Tips in Troubled Times recently devoted an entire article to "Car Buying in a Slow Economy". Still, we asked our experts for any additional tips, and compiled the list below.

  • Stoller said it's important to "have a budget and know what you can afford." GMAC has more financial help at SmartEdge. He added, "People need to know their credit score. Pull your score and make sure it's accurate. "
  • Get preapproved for a car loan through your bank or credit union even if you want to consider dealership financing, Toprak suggested. This will put you in a stronger position at the dealership and allow you to negotiate as a "cash buyer." In the finance office, you can see if the dealership can beat your preapproved loan.
  • Consider shopping for a used car or a certified used car. GM's certified used car program, for example, includes a 100,000-mile powertrain warranty, McDonald said. A used car that's just a few years old typically saves nearly 30 percent over a new car and depreciates more slowly since the biggest drop in value is in the first year.
  • Consumers who still want to lease should look at the vehicles with the strongest residual values. Honda, Toyota and a number of other manufacturers are still offering lease specials for those with good credit.

Forecast for the Future

Although credit is tight, car sales are low and consumer confidence has taken a beating, it won't last. The economy goes through cycles just like anything else. The bright side of this is that consumers are being encouraged to borrow more responsibly, live within their means, and make wiser car-buying choices.

Dealers, too, have an upbeat outlook. "We've survived fires, strikes and 9/11," said Goudy Honda's DeVille. "We will bounce back from this."