-->When GM, Ford cut area loans, car sales got stuck in reverse




10:01 PM CST on Saturday, February 21, 2004


By TERRY BOX / The Dallas Morning News



Ford and General Motors dramatically cut their lending on new cars and trucks in Dallas-Fort Worth last year as economically beleaguered consumers struggled to pay their bills.

Both say they expect their finance divisions to fund more consumer loans this year, and dealers say Ford Motor Credit Co. this month eased some of the restrictions that it imposed last year.

Still, new-vehicle sales in the area can't fully recover until credit is widely available again, dealers say. Annual sales fell 6.4 percent in 2003, and January's sales were down 9.9 percent from the same month in 2003.

The tighter lending policies last year mainly affected customers with marginal credit ratings - those who were late on a house or car payment, or missed payments on their credit card bills. The policies reflected Ford and GM concerns about the region's weak economy, low consumer credit ratings and increasing delinquent payments.

Last year, Ford Credit reduced its local lending activity 30.93 percent, which was nearly twice as high as its 15.54 percent drop in local sales, according to data in The Freeman Metroplex Recap of new-vehicle sales. General Motors Acceptance Corp. had a 19.29 percent decrease in its activity in the four-county area, compared with a 3.78 percent drop in local sales.

In Dallas-Fort Worth, dealers say, Ford Credit went too far.

Loan policies got so tight that most customers with marginal credit could not get financing and had to go instead to a bank or credit union - which are sometimes not as motivated as the automakers' finance divisions to fund high-risk customers.

"Ford Credit is potentially our greatest asset in the marketing of our products," said Sam Pack, owner of Five Star Ford in North Richland Hills, Sam Pack's Five Star Ford in Carrollton and Ford Country in Lewisville."Their performance is absolutely critical to our success."

For Ford and GM - the dominant brands in the Dallas-Fort Worth new-vehicle market - the finance divisions now play a dual role. They generally provide much of the loan funding that dealers need to sell cars and trucks and, in the hyper-competitive, incentives-driven auto industry of today, generate most of the companies' overall profit.

GMAC, for example, provided about $2.8 billion of GM's overall $3.2 billion profit. Ford Credit, meanwhile, earned $1.8 billion last year, enabling Ford Motor Co. to cover losses in other divisions and still post net income for 2003 of $495 million.



Easing standards

After Ford dealers in this market demanded more credit help, they said, Ford Credit agreed this month to slightly ease some of its standards and is adding about 60 employees at Ford Credit's regional service center in Irving - a 10 percent increase - to help with collections.

Daniel Jarvis, a spokesman for Ford Credit, declined to comment on local changes, saying Ford Credit's relationship with its dealers is"private."

"I don't mind saying that we have added more people down there and we always look for ways to work with our dealers to help them be more successful," he said.

Texans had an average credit score of 653 according to an October survey by Experian, a major credit bureau. That score, the lowest in the nation, is brought down by the state's lower incomes, younger population and higher proportion of immigrant families not accustomed to using credit. The average consumer in Dallas-Fort Worth had a score of 654.

The result is that many local car buyers need a tolerant lender, dealers say.

"I had to hire a special finance director for those customers who were unable to get financing from Ford Credit," said Jerry Reynolds, managing partner of Prestige Ford in Garland, the area's largest single dealership. The finance director helped potential buyers find loans elsewhere.

Although neither Ford Credit nor GMAC would disclose their delinquency rates in the Dallas area - the number of loans on which payments are late - they acknowledged that the rates were a factor in their decisions to be more conservative in their lending.

"The majority of our policies are driven by the marketplace we operate in," said David Jones, vice president for plans at GMAC.



A conscious decision?

Mr. Jones said GMAC has not made any"significant decisions" in the last two years to change its lending policies, relying instead on its regional offices to make"adjustments" to local markets.

The Freeman Recap also indicated a drop in local loan activity by DaimlerChrysler's financial division, but the decrease was less than DaimlerChrysler's decline in sales. Toyota, Honda and Nissan - most of which had sales gains last year - loaned more money in 2003.

Ford Credit, however, made the decision two years ago to be more cautious in its loans as Ford Motor Co. sought to return to profitability.

"Following the revitalization announcement in '02, we as a company needed to intentionally reduce the size of our portfolio in an effort to reduce the number of high-risk loans," said Ford Credit's Mr. Jarvis.



Dealers concerned

Dealers throughout the area - most of them Ford and GM retailers - are concerned about the tighter policies, said Russell Duncan, a partner in the CAR Report of Dallas, which tracks automobile sales and trends.

"It was a pretty significant drop last year," Mr. Duncan said."There seemed to be a general sense of 'Where is my manufacturer's finance arm?'"

When interest-free financing became prevalent in the industry in 2001 and 2002, some banks got out of automobile financing, said George Hoffer, an economist at Virginia Commonwealth University in Richmond. As a result, dealers have fewer consumer-loan options now.

"With fewer players, the dealers have fewer finance choices," said Dr. Hoffer, who follows the auto industry.

Mr. Reynolds of Prestige Ford said he thinks Ford Credit's new relaxed standards could help him increase business as much as 20 percent this year.

"I get the sense that they lost some market share with the dealers in '03 and they want to get it back," he said."We need them back. If I'm going to get back to doing 700 to 800 units a month, I've got to have Ford Credit with me."

E-mail tbox@dallasnews.com