You’ve seen the news – car dealers and manufacturers are worried about flagging car sales. They want to move those cars off the lots, but the economic crisis is making it harder and harder for consumers to buy.
Between the number of people who can no longer afford to buy and the number whose credit scores have plummeted due to credit card issuers recent activities, the pool of car buyers has been shrinking daily.
In fact, according to figures from Autodata, March 2009 vehicle sales were 37% less than sales in March 2008.
As a reaction to this trend, GMAC Financial Services has decided to set aside billions of dollars for consumer car loans, and is lowering credit standards. This is a reversal of last year’s decision to protect itself from risk by raising credit score requirements.
By late 2008, GMAC’s minimum credit score requirement had gone to 700. Then, when the government injected $6 billion into the company, it reduced the score requirement to 621.
Now, in an effort to qualify more buyers, GMAC announced that it would once again be lending to sub-prime borrowers – those with scores below 620.
GMAC hopes to lend $5 billion during April and May – a time frame that coincides with the period President Obama set for GM to come up with a new plan to ensure its survival.
Meanwhile, car dealers are offering lowered prices and lowered interest rates on new cars – especially those models that have proven less popular with consumers.
Will this move cause consumers to rush to car lots? Some, no doubt. But the overall trend across America has been one of belt-tightening. Consumers may be more inclined to wait, or to purchase a used car rather than pay the high price for a new model.
Parts outlets and mechanic shops are already reporting an increase in business as dollar-wise citizens move toward a “fix what you already own” mentality. Buying on credit has lost much of its appeal for consumers who now face rising interest rates on goods and services they bought last year or the year before. In fact, with minimum payments rising along with interest rates, some consumers are hard pressed to keep up with the debt they already have – without adding a new car payment.
As one consumer stated recently: “If I can’t pay for it outright, I don’t need it.”
