March 13, 2010

Dealers scramble to fill car-loan void


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Photo by John Ewing/Staff Photographer. Thursday, November 6, 2008....Quirk Chevrolet has lots of cars and trucks for sale on it's Brighton Avenue dealership in Portland.

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Photo by John Ewing/Staff Photographer. Thursday, November 6, 2008....Quirk Chevrolet has lots of cars and trucks for sale on it's Brighton Avenue dealership in Portland.

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Staff Writer

Maine-affiliated banks are joining the exodus of national lenders that formerly loaned money through automobile dealers.

The sudden exit of these leading credit sources is contributing to slumping auto sales by making it harder for Mainers to borrow money for cars and trucks. Typically, seven of 10 buyers finance their vehicles through a dealer, working with third-party lenders and the financial arms of automobile manufacturers.

In the past month, Ira Rosenberg, chief executive officer of Prime Motor Group, said he has received letters from two Maine-based lenders, Bangor Savings Bank and Northeast Bank, and from North Carolina-based Wachovia Corp. Each said they're getting out of third-party auto lending.

''It's a herd mentality,'' said Rosenberg, one of Maine's biggest car dealers.

These three companies were among the top lenders in Maine during September, according to industry figures. And their departure comes at a time when national lenders, such as GMAC Financial Services, are short of cash and cutting back on the amount of credit they offer consumers.

The overall impact of this credit pullback is hard to quantify. No one keeps a list of who was denied credit and the reasons why.

Also, the wider economic crisis has reduced the number of people shopping for cars. Auto sales fell nationally in October to their lowest level in 17 years.

That said, vehicles typically are a household's second-largest purchase -- next to a home. And it's clear that Mainers who want a vehicle and need to borrow money suddenly have fewer, more costly options, especially if their credit histories aren't the best.


As available credit shrinks, dealers are trying to shift to other resources.

At Prime Motor Group, Rosenberg is getting help from Toyota Financial Services. The Japanese automaker is offering zero percent financing on selected models.

Another large dealership, Lee Auto Malls, is relying more on in-house financing, becoming a default lender of sorts for people who don't qualify for conventional loans. Lee also is forging new relationships with credit unions, which see lending opportunities in the pullback by banks.

''They're my new best friends,'' said Adam Lee, the company's president. ''They want to loan money, they have members who buy cars, and I have a bunch of cars I want to sell.''

A credit union emerged as the best option for Louis Alexander, a postal worker from Limerick who recently bought a used 2008 Jeep Grand Cherokee from a Portland dealer.

''My credit was a little shaky,'' he said. ''It's not poor, but it's not great.''

Aside from outright denials, tighter credit has led to higher rates and less favorable terms from some lenders. Alexander said he could have gotten financing through the dealer, but the monthly payment he was offered was more than he could comfortably afford. Also, all the publicity about big banks going under made him skittish about financing with an out-of-state lender.

In the end, he got a loan from cPort Credit Union, which has branches in Portland, Scarborough and Augusta. The monthly payment, he said, is roughly $100 a month lower than what he might have paid with dealer financing.

''My credit wasn't the greatest,'' Alexander said, ''but I was able to get a good deal from the credit union. They seemed to be more accommodating.''

The crunch is happening as lenders in Maine, including community banks and credit unions, are advertising their willingness to loan money. These promotions, however, obscure the trend away from indirect auto loans.

In today's lending environment, many banks see this business as more risky and less profitable, compared to commercial loans and home mortgages.

Their departure coincides with an announcement in October by GMAC. The lending arm of troubled automaker General Motors said it will loan only to prime borrowers with credit scores above 700.

Credit scores are one indication of a consumer's ability to pay back a loan. They range generally from 330 to 830. A lower score typically means a higher risk. Borrowers with the highest credit ratings also tend to get better interest rates and more favorable terms.

Maine consumers have an average score of 709, compared to a national average of 693, according to recent surveys by Experian Information Solutions, the credit rating agency. The number of late payments in Maine also is below the national average.

So even though Mainers, on average, appear more responsible with debt, many now fail to qualify for GMAC financing. Until now, GMAC had been a leading source of car loan funding in the state.

''GMAC has practically gone out of the lending business,'' Rosenberg said.

Hundreds of computer models exist to calculate credit scores. Maine lenders stress that they also consider other measures of loan risk, such as an applicant's work history.

GMAC's well-publicized 700 cutoff figure, however, has contributed to a view that all lenders remaining in the third-party loan business have tightened their credit requirements.

Some of Maine's leading auto loan lenders say that's not the case.


One of them, TD Banknorth, says it favors scores above 650 but considers each application on an individual basis. That approach isn't new, according to Michael Copley, the bank's senior vice president for retail lending.

Car loan approval rates in 2008, he said, are on par with the past five years. Dealers recognize the bank's conservative loan standards, he said, and don't forward loan applications from customers with lower scores or unfavorable credit history.

''They don't send us paper that they know we're not going to take,'' Copley said.

TD Banknorth was the top lienholder for new cars sold in Maine during September, according to industry figures, with 9 percent of market share.

TD Banknorth's contention that its lending standards haven't changed doesn't square with the recollection of Adam Lee. In past years, Lee said, TD Banknorth was a primary source for used-car loans.

''Now they've pulled in dramatically,'' he said.

Lee said he got a letter recently from the bank saying it no longer wants loan applications from two of the company's 12 dealer locations. This request suggests the bank is having a harder time collecting on loans in those areas, Lee said.

''They're not the only bank to do this,'' Lee said, ''but they tend to do it more than other banks.''

Other Maine-affiliated banks just pulled the plug on dealer-originated car loans.

Northeast Bank made the move in September. The bank decided it was more profitable and less risky to steer assets to commercial lending, mortgages and home equity loans, according to Jim Delamater, Northeast's president.

Northeast continues to make car loans directly through its branches, looking at the broad reach of an applicant's financial history.

''We never underwrite to scores,'' Delamater said. ''We underwrite based on a customer's ability to pay.''


Perhaps the most significant local departure has been that of Bangor Savings, which had been a leading third-party auto lender. It notified dealers in August of plans to exit the business in October. By coincidence, that's when the economic crisis hit.

''We had no crystal ball to show what was going to happen nationally to consumer lending,'' said Yellow Light Breen, a senior vice president at the bank.

The departure of Bangor Savings has had an impact at Quirk Auto Group, which has dealerships from Bangor to Portland.

''They were a major player in our financing,'' said Jack Quirk, the president.

GMAC has been an important lender for manufacturer programs, such as zero percent financing on new cars, Quirk said. But he prefers working with local banks that are willing to dig into a marginal credit score and look at factors, such as illness or divorce, that might have marred an otherwise good history.

''Lots of times,'' Quirk said, ''the dealership has to pick up the phone and talk to the loan officer directly and say, 'Could you take another look at this customer?'''

People with imperfect credit histories often buy used cars through dealers that specialize in that side of the business. They, too, are seeing credit tighten.

Glenn Geiser owns Bangor Car Care, the state's largest used-car dealer.

He typically sees buyers who have scores between 520 and 620. He works with out-of-state lenders who focus on the subprime market, including AmeriCredit Corp., Credit Acceptance Corp. and Persian Acceptance Corp.

In a sign of the times, Persian was the top independent lender for Maine used cars during September, according to industry figures.

In recent weeks, Geiser said, subprime lenders have become more restrictive. They are tightening standards for length of employment and income levels, he said. They want to reduce financial exposure, and have become skittish about having too many loans at one dealer.

These changes had a dramatic effect for Geiser, and indirectly, Maine car shoppers. Geiser had a second dealership, Lewiston Car Care, that he said was profitable. But he closed it in September, as a way to reduce his sales to match available financing.

''We had a good business in Lewiston, but I had to cut volume,'' he said. ''That's how crazy the world is now.''

Staff Writer Tux Turkel can be contacted at 791-6462 or at:

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Additional Photos

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Jack Milton/Staff Photographer: Barbara Curran, of South Portland, with help from her brother-in-law Hartley Simmons, Cape Elizabeth, shop for a new car at Quirk Chevrolet, in Portland Saturday, November 8, 2008. Salesman Edward Davidson, right, points out features on the Chevrolet Impala Curran was looking to buy.

Jack Milton


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