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post #1 of 1 (permalink) Old 04-25-2008, 08:37 PM Thread Starter
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Chrysler lowers car loan rate

From the Detroit Free Press:

Chrysler lowers car loan rate
6.9% is meant to help more qualify
BY TIM HIGGINS FREE PRESS BUSINESS WRITER April 25, 2008

As the economy worsens and automakers struggle to sell new vehicles in the United States, Chrysler LLC is working to get people with less than stellar credit in new cars and trucks.

"Our credit-challenged customers are always trying to find a car ... they're on the doorstep every day wanting to buy a vehicle and trying like heck. So we're trying like heck to get them bought," Steven Landry, Chrysler executive vice president for North American sales, said recently at a Northwood University event.

Earlier this month, the Auburn Hills automaker introduced a special 6.9% financing rate for people with B-tier credit. A year ago, people with such credit would get financing at about 12% or higher, executives said.
Chrysler's U.S. sales are down 15.5% so far this year compared with last year.

The move to help middle-level credit shoppers comes as Chrysler dealers
have noticed a tightening of credit at lending institutions within the past year.
"In the marketplace today, monthly payment is the most critical part for the customer that comes into the showroom. Their monthly payment is what's going to drive their purchase," Landry said. "A lot of times we're working internally at providing tools with Chrysler Financial to make the risk portfolio of customers be better and make that customer viable."

Landry noted at the university event last week that the automaker has focused its incentive spending during the first quarter of the year on zero-percent financing.

Earlier in the month, Landry said the automaker wants to help get previous customers with B-credit -- and a history of making their monthly payments -- into a new vehicle. "We believe they should remain in our family and not be penalized because of the overall credit situation," Landry said at that time.
Richard Howse, senior director of the auto finance practice at J.D. Power and Associates, said its studies have revealed a trend in recent months of mid-level credit customers getting squeezed into lower rankings.

He predicted that Chrysler's efforts could see some success. "There is still that market in the B," Howse said. "That would be a good opportunity because there is a piece of the market that people are struggling to get lower rates, so it would probably be very attractive to them."

Howse suggested that people in the B-tier are looking to make a vehicle purchase out of necessity. "They need transportation to their job or get income. ... It's more of a necessity than discretionary where maybe the A-tier is more discretionary," Howse said.

Chrysler Financial declined to discuss what a person's credit history would look like to rank in the B-tier. A spokeswoman noted that it is more than just a credit score.

Jesse Toprak, executive director of industry analysis at Edmunds.com, said a person with a credit score of 680 to 620 would typically get placed in the B-tier.

"The demand is low, and the only thing that is selling well out there are compact cars, the hybrids and some crossovers, everything else is down. In that environment, automakers and captive finance companies are under pressure to lend to more people because those are consumers that are ready to buy and show at least some ability to repay," Toprak said. "It's not in the best interest of the company at this time to turn them away.

Toprak cautioned that there is an inherit danger in this.
"The problem is that the risk assessments of the captive finance companies are not always the best," he said. "There are a lot of people working for dealerships, working for captive finance companies that are under pressure to accomplish short-term goals. ... It's been proven time and time again that as you relax your lending criteria at the lender, you are opening yourself up to more risks. That's just the way it goes. The same thing happened with the housing situation."

He noted other automakers have had troubles after ramping up loans to people with less than stellar credit. For example, in 2003 Mitsubishi stumbled when it had to take substantial charges from bad debts racked up giving loans to young people who defaulted on them.
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