Easier US car credit increases sales hopes

The US car loans market is showing signs of a thaw, raising hopes of a modest recovery in vehicle sales over the next few months.

Carmakers and dealers have cited tight credit as one of the main reasons for the steep drop in vehicle sales over the past six months.

General Motors expects total US light-vehicle sales for January to slide below 10m, from 10.3m in December and 15.2m in January 2008.

The evidence of easier conditions include a sudden improvement in the used-car market, intensifying competition for vehicle-financing business and an easing in credit criteria by General Motors’ and Chrysler’s financing arms since receiving US government support.

Volkswagen recently issued $1bn of securities backed by car loans. Standard & Poor’s said on Thursday that it expected other carmakers to follow suit.

“We’re definitely starting to hear from dealers that financing is becoming a little more available,” said Melinda Zabritski, director of automotive credit at Experian, a credit-report service.

Tom Webb, chief economist at Manheim, the biggest used-car auction group, said that “the auction business has gotten a lot better”. He said auction prices had improved since early January and more vehicles were being sold at their first offering.

AutoNation, the biggest US dealer chain, said this week that GMAC, GM’s financing arm, accepted only nine loan contracts from its dealers last month, down from more than 1,500 in December 2007.

“As soon as we get credit, people are going to be amazed at the lift in sales,” Mike Jackson, AutoNation’s chief executive, told a conference in Detroit.

Chrysler Financial said that credit applications from dealers had picked up in the past few days, but that it was too early to tell if this would translate into more contracts. It received $1.5bn in government loans last week, allowing it to launch a five-year, interest-free financing promotion and lower its credit-score threshold for loan approvals.

GMAC announced similar incentives last month after a $5bn bail-out. GM said that, although total US new vehicle sales are likely to fall again this month, the drop is due entirely to lower orders from car-hire operators.

Even so, demand remains weak. Jerry Ulm, owner of a Chrysler dealership in Florida, said that “we haven’t been seeking a whole lot of credit for our customers because January is typically a difficult month, and this one is especially difficult”.

A growing number of lenders have expanded their vehicle-financing business as access to credit markets has dried up for the three Detroit carmakers’ “captive” financing companies.

Ohio-based Fifth Third Bank said on Thursday that its car loan portfolio grew by 2 per cent in the fourth quarter from three months earlier, but remained 11 per cent lower than the final quarter of 2007.

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