It’s not just auto consumers who are gaining greater access to credit, in contrast to an icy reception a few years ago.
Auto dealers also are finding it easier to get so-called floorplan lending for their wholesale purchases of vehicle inventories. That is in contrast to the credit freeze of 2008 and 2009, when many dealers were left out in the cold, unable to find lenders willing to accommodate anyone but the most creditworthy.
“Cash is king,” became an oft-quoted term of the times, sometimes said ominously, sometimes bitterly. Some dealers with little cash at hand went out of business because of their inability to get loans to stock their lots.
But that was then. Credit availability has done a remarkable turnaround. For example, Ally Financial is increasing wholesale credit lines for dealers as they ride the wave of improved sales. In the first quarter, Ally expanded wholesale limits for more than 40% of its dealer clients.
“The flexibility in our credit line administration not only supports dealers, but also aligns with accelerated manufacturer production levels,” Ally Financial President Bill Muir says.
“We are seeing strong demand for increased inventory-financing for both new and used vehicles, as dealers seek to fully stock their lots and maximize their sales potential,” he says.
Ally attributes the market momentum to strides in the economy, greater availability of retail credit, consumer interest in new and refreshed vehicles coming to market and pent-up demand from people looking to replace their aging vehicles.
Formerly GMAC, Ally is the nation’s leading auto finance firm. In the U.S., Ally financed $9.7 billion in consumer auto sales in the first quarter. It had an average of $26 billion in dealer wholesale financing outstanding, up 10% from the same period year-ago.
The company is increasing its U.S. underwriting staff levels 15% to handle the greater volume of consumer auto-loan applications. Underwriting teams now work seven days a week, with extended hours.
“It's a great time to buy a car or truck,” Muir says, citing attractive interest rates and incentivized lease programs. “It is not hard to get a car loan today.”
Credit-challenged and out-of-work consumers in particular had problems securing auto loans during the recession.
But for those ranking above subprime and nonprime levels, credit availability “was never as bad as it seemed,” Muir tells WardsAuto. “It all starts with whether someone has a job. Employment is the No.1 driver.
“In 2008 and 2009, all auto lenders looked only at prime-credit people. But we quickly turned that around and started doing the broad spectrum.”
The reason for the turnaround is that overall auto-loan performance, although showing an uptick in delinquencies during the recession, never rose to the code-red levels seen in the mortgage industry.
“We’ve always had a discipline in underwriting auto loans,” Muir says. “You are not doing a good deed if you lend money to people who are unlikely able to pay it back.”
His firm recently completed a nationwide expansion of its Ally Buyer’s Choice financing product for new ’12 and ’13 General Motors and Chrysler vehicles. The program had debuted in select U.S. markets last year.
Muir describes Ally Buyer’s Choice as delivering the best of both worlds for consumers who want the advantages of buying and advantages of leasing. It allows consumers to own their vehicle including a fixed rate and payment with options to sell it to Ally on a pre-determined date and pre-determined price.
Ally originally launched the program with an option to sell at the 48th month of the lease contract term. Ally recently added a 60th-month sell option. Customers also have two mileage options to choose from: 12,000 miles (19,200 km) or 15,000 miles (24,000 km).
