Car loans stretching

Experts warn such financing risky for buyers
By Jack Mazurak

Toyota Financial Services is offering 84-month loans for vehicles, but financial and industry professionals warn stretching out payments that far puts the buyer in a bad place.

"I was floored when they started doing 72-month loans," financial adviser Chris McAlpin said. "A rule of thumb that I like is pay for it outright. But I understand that not everybody can."

As 2007 closes with about 16.1 million new-vehicle sales in the U.S., the lowest in nine years, the auto industry is grappling to push sales higher for 2008 and long-term loans can play a part.

Toyota cut back on incentive offers in late 2007 and began offering 84-month loans. Other automakers, including the Detroit 3, also offer long-term loans. But those loans, including Toyota's, are reserved for customers with sparkling credit.

The idea behind long-term loans is buyers can afford vehicles through lower payments. But such loans, over time, can trap consumers into paying significantly more than sticker price.

For instance, a person financing $25,000 at 7 percent interest would pay $377 a month on a 84-year loan, compared to $599 for a 48-month-loan. However, the person with the extra payments ends up paying about $31,700 because of the added interest. A person with a 48-month loan would pay about $3,000 less.

Buyers who want a new car after three or four years can end up owing more than the car is worth, a situation known as being upside down.

In a summary of trends for the new year, analysts at automotive Web site Edmunds.com predicted consumers increasingly will find themselves upside down on their car loans.

Edmunds.com found, of those who bought new cars in 2007 and traded in a used vehicle, 25.6 percent had negative equity in their trade-in. The average amount upside down was $4,059, the highest negative equity average on record.

Buyers often fold the negative equity into a new-car loan, and can end up owing Lexus-level money on a Toyota or Lincoln dollars on a Ford.

"Most people spend their entire life with a car note. That's not how to get ahead," McAlpin said.

"I'd say 36 months max. Put money down, buy a car you can afford. Don't get all the bells and whistles, get something that's a good value, something that's going to run a while."

He suggested people let go of cars as status symbols and drive something practical and affordable.

Terry Jackson, automotive writer for Bankrate.com, observed long-term loans are double-edged swords for automakers.

"As car prices rise and buyers want vehicles with luxury appointments, the only way to make the deal attractive is to offer lower monthly payments. This is especially true in today's marketplace, where new vehicles sales are spiraling downward. But lenders also know that the default rate on these longer loans is higher than on loans of 60 months or less," he wrote in a Dec. 21 column.

Consumers, including those with great credit, can see their situations drastically change in seven years.

"Buyers can lose their jobs, get sick, get divorced or experience another life event that prevents them from making the loan payment," Jackson said. "My advice? If you have to extend your car loan beyond five years and can't afford to put at least 20 percent down, scale back your car desires to something you can afford."

Several metro-Jackson dealers said they haven't seen much demand for 72- and 84-month loans. Rather, their customers pay cash, lease or take incentive options.

Larry Cruise, president of Fowler Buick Pontiac GMC in Brandon, said 10 percent of customers lease, 60 to 70 percent cut a check, particularly for Buicks and GMCs.

"The other 20 to 30 percent are financing. But we're really not seeing that (long-term financing.) When you can get zero percent at 60 months, it makes sense to go with that because you're getting free money," he said.

Shanehan Westphal, sales manager at Herrin-Gear Infiniti, said 40 percent of his customers lease, a good alternative to long-term loans when the buyer isn't going to keep the car more than five years anyway.

"If you're going to... finance it for five or six years and keep it for three, you're going to be in debt. You put yourself in a difficult situation. If you lease for three years, you come back in three and toss us back the keys. Who's the smarter person?" he asked.

He recalled a regular customer who sells high-end homes in Madison County. She puts on a lot of miles but gets a tailored lease allowing 45,000 miles a year for two years.

"She needs a higher-end vehicle when she's selling homes at $350,000 and up. Had she financed the vehicle for 60 months it would be worth little with 225,000 miles. Yes, she'll pay more on the lease payments but in two years, it's not her responsibility," he said.

"(Longer-term loans) are becoming more accepted than in the past. Probably 15 years ago, 48 months was a long time. The price of cars has gone up. But if you're buying and keeping it for three years, you're basically leasing anyway."


In your voice
Read reactions to this story

Hookadawgup wrote:

At some point prices of vehicles are either going to have to come down or stay stagnant. Even the so called 'cheap cars' are running 28-36K. When buying a new car most people cannot afford large down payments, much less to pay the entire amount out -right. The only other option is to go with special financing offers. 1.9% over 72 months. 0% in 60. Which honestly, really makes sense. I'd rather take that lump sum check that I'd pay on a new car and put it into a mutual fund earning 8-28% (or greater) interest, and buy a car at 0-1.9% interest over a longer period of time. Really the bottom line is, the auto industry is going to be in a major, major bind over the next 10 years. A car is only worth so much. For most, there is a cut off point where the buyer simply won't pay that amount. That's why I believe Smart Car types will cut into the traditional manufacturers sales over the next several years. You can get a Smart Car for 12K.
1/2/2008 12:22:10 PM

AESmom wrote:

If some people in Jackson would let go of the status symbols and buy cars that they can afford, this would not be an issue. I see so many high end vehicles parked in front of low end apartments. It all goes to show that some people don't have their priorities in the right place. If you have to stretch a loan for 84 months, chances are you can't afford it anyway. Drive a Honda...buy a house.
1/2/2008 10:51:41 AM

TechSuperGirl wrote:

Now, this is just great! On top of the fact that these cars are WAY over priced, who needs a car loan for almost 10 years! People need to realize, they will be paying top dollar for a car, that after the first couple of months out of the dealership, won't be worth the monthly note! Not to mention, Toyota will price the car at a sticker amount, when you factor in the interest, it will skyrocket the overall payments for the vehicle. This is just a testament to how bad things have gotten in this country. Obviously, if you need to stretch payments out that far, you can't afford the vehicle. People, find a reputable used car lot, do your homework, and purchase a great used car. Also, people who have vehicles that are paid for, take care of them, this is getting out of hand.
1/2/2008 9:43:30 AM


PaulWBrown wrote:

No dobut there will be a market for these extended time car loans. It is a sad commentary on the American public's spending / buying habits. It is not how much will it cost me in the long run or how much interest I have to pay, but what is the monthly payment?
1/2/2008 6:08:58 AM

original post found here.

Late Payments on Consumer Loans Rise

By JEANNINE AVERSA

WASHINGTON (AP) — Late payments on a cluster of consumer loans, including those for autos, home improvement and certain home equity loans, climbed in the summer to their highest point since the country's last recession in 2001.

The American Bankers Association reported Thursday that the delinquency rate on a composite of consumer loans increased to 2.44 percent in the July-to-September quarter. That was up sharply from 2.27 percent in the previous quarter and was the highest late-payment rate since the second quarter of 2001, when the economy was suffering through a recession.

Payments are considered delinquent if they are 30 or more days past due. The survey is based on information supplied by more than 300 banks nationwide.

Late payments on credit cards, meanwhile, dipped during summer.

The delinquency rate on credit cards dropped to 4.18 percent in the third quarter, down from 4.39 percent in the second quarter.

The association's quarterly survey of consumer loans painted a mixed picture of how people are managing their debt. It suggested that some people feel more squeezed than others.

A severe housing slump and weaker home values have clobbered some homeowners — making it difficult, or even impossible for some to pay their monthly mortgages. Foreclosures surged to record highs and more homeowners fell behind on their payments during the third quarter of last year, the Mortgage Bankers Association reported last month.

A drop in home prices left some people stuck with balances on their home mortgages that eclipsed the worth of their home. Others got burned when low introductory rates on their mortgages jumped to much higher rates, which they couldn't afford.

"Consumer loans directly related to the housing market were hit the hardest," said James Chessen, chief economist at the American Bankers Association. "We anticipate delinquency rates will continue to rise on these types of loans in the fourth quarter of 2007, reflecting continued weakness in the housing sector."

Late payments on home equity lines of credit jumped to 0.84 percent in the third quarter. That was up from 0.77 percent in the second quarter and was the highest since the final quarter of 1997. The delinquency rate on home-equity loans in the third quarter rose to 2.28 percent, a two-year high.

Meanwhile, the delinquency rate on "indirect" auto loans — which are arranged through dealerships — jumped in the third quarter to 2.86 percent, a 16-year high.

Kbb.com: Car shoppers cut spending due to gas prices

Kbb.com: Car shoppers cut spending due to gas prices

New-vehicle shoppers plan to adjust their shopping habits due to high gas prices, spending less money on themselves so they can still give to others during this holiday season, according to the latest Kelley Blue Book Marketing Research study (www.kbb.com). The December 2007 results reveal that 44 percent of in-market new-vehicle shoppers are looking at cars they normally would not have considered due to the pain at the pump. An example of this is a notable shift in vehicle segment consideration from just two months ago, with increased interest in less expensive and more fuel-efficient transportation including crossovers, sedans and hatchbacks, and declines in SUV interest.

With a gallon of unleaded gasoline currently hovering at more than $3 in most parts of the country, 67 percent of those in the market for a new vehicle indicate they will not spend less on holiday gifts this year due to the rising cost of gas. However, more than 40 percent of consumers do say they are eating out less often and nearly 50 percent of consumers say they are doing less shopping of non-essential retail items such as clothes and shoes; further examples of consumers cutting back on self-spending. According to new-car shoppers, the largest shift in personal spending includes delaying the purchase of a new home, which more than doubled from October to December.

“While gas prices are clearly influencing the way consumers plan to spend money on themselves, such as going out to eat and delaying the purchase of a new home, it appears most people will not let the price of gas affect their holiday spirit and giving to others,” said Jack R. Nerad, executive editorial director and executive market analyst for Kelley Blue Book and kbb.com. “Based on our monthly study, shoppers are willing to sacrifice in order to still give to others, and it even extends to their next new-vehicle purchase. We are seeing more and more new-vehicle shoppers looking at smaller and more fuel-efficient cars than in the past. ”

When asked how gas prices have affected which vehicles they are considering, more than half of consumers say they would seriously consider a vehicle with higher fuel efficiency if gas prices were to increase as little as 50 cents per gallon. Among those looking to buy a new hybrid vehicle, shoppers say they are most interested in the Toyota Camry hybrid and the Honda Civic hybrid.

“Determining how gas prices affect consumer shopping provides tremendous insight into shifts in the economy, and tracking their opinions of alternative fuel solutions sheds light on the possible adoption and acceptance rates of alternate fuel systems in the future,” said Rick Wainschel, vice president of marketing research and brand communications for Kelley Blue Book. “Timely, in-market vehicle shopper feedback can provide invaluable information to automotive manufacturers and marketers, allowing them to tailor their messages and strategies more toward what car shoppers actually think and how they plan to spend their money.”

The latest Kelley Blue Book Marketing Research study was conducted on Kelley Blue Book’s kbb.com among in-market new-vehicle shoppers during the first week of December 2007.

GMAC Targeting 30% Increase to Dealer F&I Revenue

GMAC Insurance Unveils Innovative Solution

GMAC Insurance Unveils Innovative Solution Targeting 30% Increase to Dealer F&I Revenue

GMAC Insurance Group

SOUTHFIELD, Mich., Jan. 3 — GMAC Insurance today introduced the latest additions to its innovative suite of technology-based solutions for automotive dealers. Combined with ongoing training and support, IntelliMenu(SM) and IntelliTracker(SM) provide a state of the art, custom- designed, menu-selling process with the potential to increase dealership F&I revenue by 30 percent on average.

"During the last several years, dealers' profit margins on new vehicle sales have become increasingly slimmer," said Tom Callahan, executive vice president of GMAC Insurance's Dealer Products & Services group. "Our integrated menu-selling process will help dealers remedy that trend. First, it will provide dealers with unprecedented and complete access to all of the tools and training necessary. And second, by enhancing customer awareness of F&I product offerings, we expect the solution will ultimately result in significantly improved penetration and revenue."

GMAC Insurance is providing this service through a partnership with menu- selling technology leader MenuVantage.

"We are proud to be working with GMAC Insurance on this unique, integrated dealer solution," said Phil Battista, co-chief executive officer of MenuVantage LLC. "On average, dealerships with our system have seen a 30 percent increase in F&I revenue. By combining our technology expertise with GMAC Insurance's complete support package, dealers can expect unparalleled service and results."

By capitalizing on MenuVantage's proven platform, IntelliMenu also will provide dealers with an interface approved for ADP's dealer management system (DMS) and certified for Reynolds and Reynolds' DMS. These interfaces allow MenuVantage access to a dealer's DMS using standard data interfaces and help ensure dealer information security, privacy, confidentiality, integrity and supportability.

The company will also supply GMAC Insurance with technology support and development expertise for future upgrades and improvements.

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IntelliMenu and IntelliTracker are big departures from the industry norm. While the majority of competitors traditionally focus solely on products, GMAC Insurance is redesigning its entire portfolio of offerings around dealer- focused solutions - integrating F&I products with on-going dealership training and best-in-class tools to provide a complete, packaged solution.

"Our business model is built around developing products, services and training that address specific issues raised by our dealer-customers. IntelliMenu and IntelliTracker were both born out of our ongoing conversations with dealers," said Callahan.

By integrating with major DMS providers, web-based IntelliMenu provides a seamless sales transaction, giving dealerships an easy, affordable way to structure multiple deals in the F&I office. IntelliMenu further assists dealerships with disclosure needs, allowing dealers to show every customer a complete listing of product offerings, while providing a record of acceptance or decline.

IntelliTracker integrates with IntelliMenu providing dealers and their GMAC Insurance account executives with up-to-the-minute information on F&I sales results. An individually tailored approach to maximizing sales is then jointly developed based on the needs of the dealer, and any necessary training is immediately set-up.

The entire process will be made available to dealers in mid- to late- January. Dealers interested in more information can contact their GMAC Insurance representative. Additionally, reps will be available to demonstrate these new solutions in GMAC Insurance's booth at the National Automotive Dealers Association (NADA) Annual Convention on Feb. 9-12 in San Francisco.

"I encourage every interested dealer to stop by the GMAC Insurance booth," said Callahan. "While there is no silver bullet to address dealer needs, we believe GMAC Insurance can offer real solutions with the depth and breadth of our products and proven F&I capabilities."

About MenuVantage

MenuVantage, based in Orlando, Fla., provides automotive dealers with best in class F&I tools to ensure compliance and increased per unit profit. The MenuVantage system offers F&I departments the most advanced technology available on the market today to increase F&I sales. It is also capable of the electronic submission of warranty and F&I products to providers, real time service contract rating, and the dynamic printing of documents on regular paper. Founded in 2003, MenuVantage has enjoyed tremendous growth and currently services more than 2,500 users at automotive dealerships in over 42 states nationwide, processing more than 70,000 deals per month. MenuVantage can be reached on the web at http://www.menuvantage.com.

About GMAC Insurance

The GMAC Insurance Group is part of GMAC Financial Services, a global, diversified financial services company that operates in approximately 40 countries in automotive finance, real estate finance, insurance and other commercial businesses. GMAC's insurance operations were first established in 1925, and now offer a wide range of products to meet the needs of retail consumers, dealers and business partners. For more information, please visit www.gmacfs.com.

SOURCE GMAC Insurance Group

California Sues EPA over greenhouse gas emissions.

State sues EPA to force waiver over greenhouse gas emissions
Bob Egelko, Chronicle Staff Writer

Thursday, January 3, 2008

California led 15 other states and five environmental groups into federal court Wednesday to challenge the Bush administration's refusal to let the state limit vehicle emissions of gases that contribute to global warming.

In a lawsuit filed in San Francisco, the state accused the Environmental Protection Agency of exceeding its authority when it barred California last month from enforcing limits on cars and trucks starting with the 2009 model year, the first law of its kind in the nation. The state needed the EPA's approval to implement clean-air standards that are stricter than federal rules.

"The EPA has done nothing at the national level to curb greenhouse gases, and now it has wrongfully and illegally blocked California's landmark tailpipe emissions standards," state Attorney General Jerry Brown said at a news conference in San Francisco.

He said EPA Administrator Stephen Johnson had offered no coherent legal explanation for his Dec. 19 refusal to let California act and accused President Bush's appointee of merely "doing the bidding of the auto industry."

The lawsuit was endorsed by Gov. Arnold Schwarzenegger, who said federal regulators were "ignoring the will of millions of people who want their government to take action in the fight against global warming."

The federal veto affected as many as 19 other states that have adopted California's standards or indicated their intention to do so, including the 15 that joined the lawsuit filed Wednesday with the Ninth Circuit Court of Appeals in San Francisco.

Other California political leaders chimed in, including Democratic Sen. Dianne Feinstein, who chairs a Senate subcommittee on the environment. She cited reports in The Chronicle and other news outlets that Johnson had ignored his legal staff's recommendation to grant California the waiver and asked the EPA's inspector general to investigate the decision.

"The thought has occurred that this was a political decision rather than an environmental decision," Feinstein said.

In response, EPA spokesman Jonathan Shradar cited Johnson's position that a national approach to the problem is better than state-by-state regulation. He noted that Bush had just signed legislation that requires makers of cars and trucks to increase fuel economy to an average of 35 miles per gallon by 2020.

"We now have a more beneficial national approach to a national problem, which establishes an aggressive standard for all 50 states as opposed to a lower standard in California and a patchwork of other states," Shradar said.

California's law, passed in 2002, established limits on auto emissions of carbon dioxide and other gases that scientists consider to be among the major causes of global warming. The law was scheduled to take effect with the 2009 models and would require automakers to reduce their 2016 fleets' emissions by 30 percent.

A federal judge in Fresno upheld the law last month, rejecting automakers' arguments that the law would interfere with exclusive federal regulation of fuel economy and would make new cars dangerous and unaffordable. But the state still needed EPA approval to enforce the law.

The federal Clean Air Act allows California, because of its smog problems, to enact air-quality rules more stringent than the national standard if the state gets a waiver from the EPA. The agency had approved about 50 waiver applications without a denial since the law took effect more than 30 years ago.

The greenhouse gas case was different, because California and the states that followed its lead were implicitly challenging Bush's policy of relying on voluntary industry action, rather than mandatory limits, to reduce greenhouse gas emissions.

After considering California's request for two years - finally prompting California to file another lawsuit seeking a prompt ruling - Johnson denied a waiver last month. He cited the newly signed federal fuel-economy law and also said the state didn't qualify for a waiver because greenhouse gases are not unique to California.

But the state and environmental groups said the EPA has regularly granted waivers to California to address air pollution problems that were not unique to the state.

In addition, "no other state can claim the same wide range of severe impacts that California faces: melting of the state's snowpack ... increases in catastrophic wildfires, worsening of dangerous smog levels and other harms," said attorney David Doniger of the Natural Resources Defense Council, one of the five advocacy organizations that went to court along with California and the other states.

California and its allies also disputed the EPA's assertion that the state law is weaker than the new national fuel-economy standards.

The EPA's Shradar said the federal agency estimates that manufacturers could comply with the California law by achieving an average of 33.8 mpg in their new cars and trucks by 2016.

But Mary Nichols, chairwoman of the state Air Resources Board, said studies by board staffers concluded that the California law would require a fleet average of 44 mpg by 2020 and would reduce greenhouse gas emissions in the state by about twice as much as the federal law.

"Frankly, this is not very surprising because California standards start earlier, go faster ... and the end points are more stringent," Nichols said.

Brown's office had said earlier that federal law required the lawsuit to be brought in the U.S. Court of Appeals in Washington, D.C., a more conservative court than the Ninth Circuit. Brown said Wednesday that Johnson's letter rejecting California's waiver did not refer to the controversy as a nationwide issue - which would have sent the suit to Washington - and instead referred only to conditions in California.

Brown said he prefers the Ninth Circuit because its record in environmental cases "has been more closely aligned with how we interpret the law." That may not matter in the long run, he added, because the case could wind up in the U.S. Supreme Court.

Chronicle staff writers Matthew Yi and Zachary Coile contributed to this report.
This article appeared on page A - 1 of the San Francisco Chronicle