SUV trade-in activity climbs with gas prices
Jason Bogdaneris and Leonard Broytman
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If you can’t afford the gas, you can’t afford the ride. With the
majority of SUVs getting less than 30 miles to the gallon and the
national average for a gallon of regular breaking $4 — nearly $1
more than at the same time last year — many consumers have begun to
move away from big, thirsty models.
“Consumers are absolutely toning down from eight- and
six-cylinder vehicles to four cylinders,” said Chris Nesky, the
finance manager at Bayside Chrysler Jeep Dodge, N.Y.
According to CNW Marketing Research data, SUV sales dropped 14
per cent last March from the same month in 2007. And a report
released by Wachovia Capital Markets in March found that roughly 75
per cent of auto dealers and makers surveyed are concerned about an
unexpected decline in SUV sales and have been selling more compact
cars and crossover vehicles. According to the report, wholesale
prices for SUVs should continue to decline, unless the price of oil
falls.
So what does this trend mean for trade-ins? Nesky’s SUV sales
are down an estimated 10 per cent to 15 per cent this year and are
suffering from negative equity upon trade-in, he said.
The luxury of less concern
For luxury vehicles, it seems the low gas mileage is less of a
concern. Daryl Cassa, the finance manager at Erhard BMW in
Bloomfield Hills, Mich., said his customers so far seem unaffected
by the soaring fuel costs. “Our customers aren’t really hurting for
money,” he said.
As the cost of filling those big tanks creeps up to three
figures, more than one dealer lauded Chrysler’s promotion of
guaranteed $2.99-a-gallon gas for three years.
But Don Hogan at Poughkeepsie Ford, a dealership in
Poughkeepsie, N.Y., said consumer interest in more fuel-efficient
cars via trade-in is more a trickle than a stampede. “As gas prices
rise, you’re probably going to see more,” Hogan said.
One definite casualty has been the diesel truck market. “They’ve
stopped selling,” he said flatly.
Perhaps a more revealing measure is the choice of Hogan himself.
After mentioning that the Ford Focus, and its 37.5 MPG, is gaining
in popularity, Hogan revealed that, “I traded in my Escape for a
Focus.”
SPOTLIGHT: VOLVO CAR FINANCE
Captive holds loan criteria steady despite faltering
economy
LeAnne Graves
Volvo Car Finance’s appetite for risk has remained untouched,
even as financiers nationwide revisit credit guidelines to address
turmoil in the market.
The brand of Ford Motor Credit Co. has opted not to change
underwriting practices it set into place several years ago. “We
support vehicle sales throughout all economic cycles,” said Ford
Credit spokeswoman Meredith Libbey. “Our underwriting practices
over the past few years have remained very consistent as reflected
in the high quality of the portfolio.”
Volvo Finance, which comprises a small portion of Ford Credit’s
business, seems to exist as a true captive — for the sake of
selling its parent company’s cars. Volvo dealers nationwide pointed
to the financier’s tactics of making loans with high loan-to-value
ratios, even to subprime borrowers, and of offering steep lease
incentives to move metal.
Volvo is one of the few financiers willing to take a chance on
customers with less than high-600 credit scores, said Lisa Schaum,
finance manager at Pittsburgh-based Bill Gray Subaru Volvo. “Right
now, we have a lot of special-finance banks that are shying away
from buying certain paper that Ford and Volvo are still buying,”
she said.
Lending to that higher-risk credit tier may spur volume for
Volvo Finance, whose rates are perceived by a number of dealers as
uncompetitive.Volvo Finance’s lease offerings are also often less
attractive than its competitors’, said Mike Path, finance manager
at Troy, Mich.-based Suburban Volvo. “Volvo cars get more money to
go outside of Volvo Finance,” he said. “It’s been like that for as
long as I can remember.”
Volvo Finance may offer sticker-price discounts of $1,700-$5,700
(£850-£2,850) per vehicle to buyers who lease with other lessors,
said Marc D’Ottavio, finance manager at Bay Ridge Volvo. The
dealership mainly finances leases with US Bancorp, he said.
Meanwhile, light-vehicle sales for Volvo Cars USA have been
sliding, down 12.1 per cent in April, to 7,138 from 8,122 in the
year prior. In the first four months of 2008, Volvo volume dropped
8.9 per cent. And loss severity on off-lease vehicles at Ford
Credit has shot up more than 25 per cent, to $8,300 per remarketed
vehicle in the first quarter from $6,600 in the same quarter of
2007.
Even high LTVs are doing little to attract borrowers, Schaum
said. Volvo Finance might lend as much as 187 per cent of benchmark
Kelley Blue Book’s “low” values, when other lenders average 115 per
cent to 125 per cent, she added.
REMARKETING
Used-car prices on the mend
Auto financiers blamed soft used-car prices and a sputtering
economy for weakened first-quarter credit performance, but the
outlook appears to be improving. Though year-over-year auction
prices were down for the entire truck sector, prices improved for
half of the lineup in the first four months of this year, according
to data from ADESA Analytical Services. All car classes showed
improvement from January through April.
Motor Finance Issue: 45 – July 08
Published for the web: July 25 08 14:41
Last Updated: July 25 08 14:58
