Arkansas Federal Credit Union made 641 automobile loans in January, a whopping 78 percent increase over the number it made in January 2011.
“There’s a lot of activity out there right now,” said Larry Biernacki, CEO and president of Jacksonville’s Arkansas Federal Credit Union. “I think really the last four months have been dynamic.”
The state’s largest credit union has seen marked increases not just in applications for car loans, but in funded car loans for every month of 2012 so far, Biernacki said. A credit union is a nonprofit, member-owned lender that specializes in retail loan products like auto loans.
A Federal Reserve Board survey on bank lending practices in April affirmed that what Biernacki saw in the first four months of 2012 was trending nationally.
The survey of senior loan officers results revealed that “Demand for consumer loans reportedly continued to in-crease, especially for auto loans.” Banks were also reporting “eased standards on credit card, auto, and other consumer loans,” according to the survey.
Arkansas auto dealers echo Biernacki’s observations, noting that car selling and car financing had heated up in the last several months. Their explanations for the trend are varied.
Matt Floyd, general manager for Nettleton Auto Sales in Jonesboro, said he watched his used car sales drop early in the recession, especially in the years 2008 and 2009.
And while Nettleton advertises “guaranteed financing,” the depressed economy made it very difficult for car shoppers to buy the cars they wanted, particularly if the buyers couldn’t afford much of a down payment, couldn’t prove they had a stable job or tended to house hop. The dealership could help them finance a car, but not necessarily the car they hoped to get.
“Where they could walk in now and buy a car, at the time, it was a 50-50 shot,” Floyd said. “It was just very hard to buy because of the way banks were lending money.”
He thinks that has changed.
“The financing has opened up tremendously, and, therefore, that makes the auto industry better for the buyers,” Floyd said. “When you’ve got more financing, it’s better for everybody. The banks are being more competitive.”
Jamie Cobb, executive manager of Gwatney Chevrolet in Jacksonville and Gwatney Buick & GMC in Sherwood, said lenders lately seem to treat auto loans as if they’re the “safest bet” because mortgages were such a lending disaster throughout the recession.
“I think there’s less repossessions than there are foreclosures,” Cobb said. “I think people pay for their car because they’ve got to have it.”
Cobb sells both new and used vehicles, and he watched his sales drop 15 to 20 percent during the throes of the Great Recession.
Near the end of 2011, auto selling at the Gwatney dealerships shot back up, and Cobb said he thinks his business is back to the level it was pre-recession.
Cobb credits his business’ recovery in part to what he considers high-quality, domestic products, but he also acknowledged financing changes.
“I would say that the loosening of the loans has probably increased our business 10 percent. People have to have loans to buy cars. Eighty percent of the people who buy a car today at our dealerships finance it,” Cobb said.
He also said that because interest rates are about half what they were three years ago, banks have to lend more frequently. “I think banks need to make more loans at lower rates,” Cobb said.
More finance companies are dabbling in subprime lending these days, he said, and others aren’t as shy of low credit scores as they were early on in the recession.
“There was a time when the banks said, ‘Don’t send me anything less than 600.’ It was probably for a couple of years,” Cobb said. “There is financing out there [now]. They just might have to pay a little higher rate.”
According to Dennis Jungmeyer, president of the Arkansas Automobile Dealers Association, a 2010 amendment to the Arkansas Constitution helped car buyers coming out of the recession.
The amendment established 17 percent as the state’s cap for loan interest rates, rather than the previous cap that was effectively 5.5 percent, Jungmeyer said.
“Credit is much more available now,” he said, noting that a broader variety of people with varying credit histories can borrow now that higher rates are allowable on higher-risk borrowers.
Jarrod Russell, general manager of Russell Honda in Sherwood, also has observed car financing standards loosening.
However, Russell sees Honda’s recent financing flexibility as a response to the March 2011 earthquake and tsunami in Japan that hurt the automaker’s ability to produce cars last year.
Most of Russell’s customers use Honda Finance to purchase their cars.
“Whereas, somebody could have had a 620 [credit score], Honda might’ve wanted a lot of money down,” Russell said. “Now, they’ll look at them and approve them without a problem. Now, [Honda is] trying to recapture all that market share they lost. … They’re taking chances where they wouldn’t have taken chances a few years ago.”
Biernacki, with Arkansas Federal Credit Union, said his company hadn’t changed its lending standards, but lower interest rates and consumers’ growing confidence in the recovering economy have seemed to spur car buying.
“What’s changed is the members’ perception of whether they thought they were going to have a job day after tomorrow,” he said. Consumer sentiment is really a very powerful peer group.”
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