Two polar opposites live in the limbo land of today's auto financing.
One group consists of people with good credit who refuse to take on more debt, fearing the worst and unconvinced the decimation of their 401k plans is done.
Then there are those who live on credit, seek it, but learn the safe is locked and the key stashed.
For much different reasons, neither group is in the market to buy cars. One group won't buy, the other can't.
Or, backing up a step in the purchase process, “those who can get credit, won't, and those who want credit, can't get it,” says Bruce Harris, Volkswagen Credit's vice president and chief risk officer.
And those trying to sell vehicles for a living can't believe the hellish situation that puts them in. Yes, those are copies of Dante's Inferno next to the sales brochures. Help yourself.
Whether vehicles are wanted as coveted objects of aspiration or needed as basic means of transportation, most are bought on the payment plan. So when credit went south last year, car sales ended up in Terra del Fuego.
There's hope, in a knocked-down, get-up sort of way. “What doesn't kill you will make you stronger,” says Chuck Noel, a vice president at Compass Bank.
Until then, there's resignation among the bloodied but not beaten. Noel offers this war story from the battlefield of finance: “I've taken a lot more body blows with lesser losses in better times than I've taken with the losses today.”
At an Auto Finance Summit in Las Vegas, Noel, Harris and other lender types share thoughts, pain and an occasional self-effacing joke.
“There are three types of people in risk management: those who can count and those who can't,” says David Shevsky, a risk manager at GMAC Financial.
The counters are not in the mood to add up a lot of losses from bad loans.
That's why consumers seeking auto financing are subject to greater scrutiny and higher expectations, such as putting some of their own money in the game. “Down payment is not a dirty word,” says Paul Kramarz, American Honda Finance's manager-risk and analysis.
With so many hobbled would-be car consumers limping along the sidelines, dealers wince at deeper and longer credit checks for the few players that are in the market
Dealers grudgingly accept the credit-check delays, but not without playing a mind game here and there, such as questioning captive lenders' loyalties.
“They'll use the brand club,” Harris says. “They'll say, ‘Don't you know we're trying to sell your cars? Don't you know you're supposed to help?’ As a captive, you are caught in the middle. But the parent company expects responsible lending.”
Lenders are seeing much fewer auto-loan requests, what with sales falling from 16.1 million units in 2007, to 13.2 million in 2008, and projected to go even lower this year.
“With traffic in dealerships what it is, the pure number of loan applications through the door is just so much less,” Noel says. That doesn't mean all is idle at Compass Bank. “We've increased our resources on the collection side,” he says.
The economy is ill when delinquent-loan collections and car repossessions are growth industries.
“During the bubble period, when the cash was flowing, people more readily paid back their loans,” Harris says. “No one is consciously making a bad loan, but borrowing behavior can change.”
Yes, that happens when the national unemployment rate hits 8.1%, more than double what it was in 2000.
Of the fewer loan applications VW Credit sees these days, “the ones we're getting are more challenging,” Harris says. So what's a lender to do? Bring in the A-team. “We've put more experienced underwriters on the desk,” he says.
Flirting with auto-industry heresy, Kramarz says: “Maybe in today's market, some people shouldn't buy a car.”
But where are those that should?