View from the US

As vehicle manufacturers and auto financiers struggle with
declining sales volume, full-size sport-utility vehicles are only
adding to their misery. Steady increases in gas prices and hefty
price tags have sent some car buyers seeking alternatives.

 Enter the “crossover,” a vehicle with an SUV-type
appearance but a more economical and fuel-efficient construction.
Sales of crossovers have begun to overtake those of full-size SUVs,
and even hefty incentives are doing little to clear inventory.

 Last month, Ford
Motor Co
. hiked cash-back offerings on two of its SUVs. On
Expeditions, buyers could receive $3,500 (£1,800) back, up from
$750 (£385) in mid-December. On the Explorer, the new amount was
even higher — $4,000 (£2,050) versus $1,500 (£770) the month prior,
according to data provided by Jato
Dynamics
. Ford lowered interest rates on both vehicles, as
well. Car buyers could qualify for annual percentage rates as low
as 0 per cent, down from ranges of 2.9 per cent to 7.9 per cent in
December.

 By comparison, the Edge, Ford’s crossover, sports
incentives of $1,500 (£770) cash back and rates between 1.9 per
cent and 5.9 per cent.

 Despite the incentives, full-size SUV sales are falling
short, and their crossover counterparts are picking up the slack,
dealers said.

The dwindling appetite for full-size SUVs is pressuring their
resale values, too. For instance, the average auction price for
full-size SUVs declined 4.7 per cent between October and November
2007, faster than any other vehicle class, according to data from
ADESA Analytical Services.

Auto loan fraud on the rise amid slowing
economy

Leanne Graves

The combination of dealers hard-pressed to make sales and
consumers strained by credit woes is packing a one-two punch in
lenders’ fraud defences.

 Some lenders of late have noticed an increase in falsified
borrower information submitted on loan applications. In some cases,
the fraud is perpetrated by the dealer; but in isolated cases,
smaller employers are aiding potential borrowers by verifying
inaccurate salary information.

 “There have been issues where dealers are really
stretching for business and employers are really desperate for
their employees to have transportation,” said John Cavanaugh, chief
financial officer of Automotive Credit Corp.

 As such, the finance company has beefed up its
verification process, requiring original documentation and using
technology and human interaction before granting loans, Cavanaugh
said.

 Freedom Financial Group Inc. has also seen a recent
increase in application fraud. Company president Jerald
Fenstermaker attributes the trend to the shrinking availability of
credit and to depressed sales volume.

 About 90 per cent of the lender’s dealer-customers are
independents, who deal primarily with subprime borrowers. That
fact, compounded by the fact that many dealers are under financial
stress to clear inventory to repay floorplan lines of credit, is
driving the fraud spike, Fenstermaker said.

 However, economic slowdowns are not a new trend, nor is
fraud in the automotive sector. The difference is that in the
previous down cycle, about seven years ago, lenders were primarily
to blame for making imprudent lending decisions, Fenstermaker said.
At the time, auto financiers simply increased loan volume by
lowering rates and expanding credit criteria without regard for the
risk ramifications, said Dean Devos, a vice president at First Bank
& Trust. As business increased, lenders learned from their
mistakes and pulled back.

Skirting fraud

Some auto financiers took steps a year ago to minimise fraud at
the dealer level. Triad Financial Corp., for example, tightened
verification practices – via direct contact and automated solutions
– after loan-performance concerns in late 2006 and early 2007. The
lender also implemented enhanced analytics to gauge loss rates and
loan-performance metrics at the dealer level.

 “It’s truly an ongoing and ‘open book’ process, so
together we can ensure the best loan is made,” said Triad senior VP
of dealer originations, David Satterfield.

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Vehicle sales continue to skid

U.S. light-vehicle sales dropped off 2.6 per cent last year, and
this year’s decline could be even steeper, analysts predict.

High gasoline prices, a weak job market, and declining home
prices will contribute to the slower sales pace. In all, 16.1m new
cars and light-duty trucks were sold in 2007, the lowest volume
since 1998.

The greatest drop-off came in July, when volume plunged 12.3 per
cent. May volume, meanwhile, increased 4.4 per cent – the highest
of any month last year – on the heels of incentives including cash
back, lower interest rates, and free upgrades.

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