There Is No Auto Credit Crisis

Auto sales are down. But it's not because Americans can't get financing. It's because they aren't shopping for cars

By Ed Wallace

I"You have to just about be walking on water to get financed…but even with our prime customers, banks are looking for a reason to say no."—AutoNation CEO Michael Jackson, The Wall Street Journal, October 2008

I have never figured out why the media use AutoNation (AN) Chief Executive Mike Jackson as an authoritative source on anything happening in the automobile industry. Reporters must think that because AutoNation owns hundreds of dealerships, it must be the most successful at automotive retailing. This is a case of confusing quantity with quality. As for Jackson's view that banks are looking for ways to not finance new cars for prime customers, I just can't find that it has any basis in reality.

Consider this: AutoNation's Bankston Ford of Grapevine (in the Dallas-Fort Worth area) sold only 60 new Fords (F) in September. However, a mile up Highway 121 at Tom Durant's Classic Chevrolet, the agency retailed 439 Chevrolets. Far from having to walk on water, Classic's customers found it relatively easy to get financing on a new Chevy. In fact, contrary to the market downturn, Classic Chevrolet sold more new vehicles this September than it did a year ago.

Of course, that's a "Chevy to Ford" comparison, so let's use AutoNation's Bankston Chevrolet, 10 miles from Classic. That store delivered just 85 new Chevys last month. Both Classic and Bankston Chevrolet use GMAC to finance their vehicles and share the same demographic customer, yet AutoNation's store came up 354 sales behind Classic's. That suggests that it was not any "marketwide credit lockup" that determined which dealer did or did not sell cars in September.

As for creditworthiness, Equifax (EFX) gives Dallas-Fort Worth the lowest average credit score of any major metropolitan area in America, a collective Beacon credit rating of 600 (that's worse than Detroit's). Yet this year, Dallas-Fort Worth continues to be one of the best markets for new car sales.

Six Truths

September's new car sales were horrendous, but this wasn't primarily because any credit lockup was keeping people with moderate or better credit ratings from obtaining loans. Here are six truths about what happened to auto sales in September:

1. Truth: Reporters nationwide found many dealerships complaining they had customers they couldn't get financing for but who could have obtained loans earlier this year. Greater truth: If you asked finance managers at the same stores at the end of any month, in years good or bad, they will tell you about the "declined" stack of folders—10 to 25 customers they could not obtain loans for, who they were certain should have been financed. So, suggesting that the inability to get "everyone" a new car loan was the cause of last month's downturn in the market is foolish. Rene Isip, owner of Toyota of Lewisville, Tex., and Tom Ryan of Metroplex Toyota in Dallas both said they obtained loans for people with credit Beacon scores of 610 to 620, or the mid-range of fair credit. Those loans require more money down, as they always have, but are available. Not having flawless credit was not a factor at Toyota, even though that brand's sales fell with the overall market. Meador Chrysler Dodge Jeep of Fort Worth had its best September for sales in almost a decade. General Manager Mike Biggers said he could see no difference in credit approvals for his customers.

2. Truth: In automotive downturns the first buyers to flee are always the most well-read and educated; they show appropriate caution about incurring long-term debt in uncertain financial times. This is a primary reason they tend to have good credit.