Buying a Car During the Credit Crunch

Kirstie_HKirstie_H EdmundsAdministrator Posts: 11,126
How has the economy affected your vehicle buying decisions and purchasing power? Are you waiting for an upswing before you buy? Or is this the perfect time to get a great price?

Let's talk about purchasing decisions, financing, and finance rates as we navigate the current credit crisis.

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  • volvomaxvolvomax Member Posts: 5,238
    This is really a funny market.
    You have a combination of high gas prices,and the angst that produces along w/ banks getting more selective about lending and interest rates going up.
    Plus, you have people coming back into the market who had low finance rates from banks 4-5%, and now they have to pay more.

    I've seen a lot over the last 20 yrs, but nothing quite like this.
  • oldfarmer50oldfarmer50 Member Posts: 21,131
    "...is this the perfect time to get a great price..."

    Just bring a brown paper bag filled with 100s down to the car dealer. Just be sure to wear clean socks because the salesman will be kissing your feet.

    Don't have a bag of cash? Stay home, you shouldn't be buying anything. ;)

    2019 Kia Soul+, 2015 Mustang GT, 2004 Chevy Van, 2000 Chrysler Sebring convertible

  • corvettecorvette United StatesMember Posts: 9,580
    More people are keeping what they have, rather than buying anything at all...

    New car manufacturers? They're all going to miss their yearly sales targets--the only question is by how much. Unless they put up some monster incentives in the next three months, there are going to be some irate "stakeholders" (which seems to have replaced "shareholders" in the lexicon).

    The finance companies are also going to be facing a glut of lease turn-ins, with no one to buy them, as lessees balk at the residual purchase price (and balk at the new, and higher lease prices on most cars) and downgrade to something a little less expensive.

    Used car market? From what I've read here on Edmunds, there has been a slight uptick in used SUV values. I think that between the gas shortage in the southeast and the turmoil in the stock market, the SUV uptick will be more than cancelled out. 30+ MPG cars will command a premium, especially if they hail from Japan... Those are the only vehicles that most people truly "want" to buy right now. Most everything else will be sales to people who "have" to buy--lease is up, car broke down, stolen, totalled, etc... Those people will gravitate towards used models, but will still represent a smaller number of sales than is typical for the market.

    Just my $0.02...
  • euphoniumeuphonium Great Northwest, West of the Cascades.Member Posts: 3,425
    Microsoft employees still pay inflated prices for their wheels in Redmond, Bellevue, & some parts of Seattle. Rancho Mirage isn't lowering their asking prices by much in the Used market. Texas and the SE seem to be a lot more economical.
  • andre1969andre1969 Member Posts: 25,254
    but if I did need a new car, I wonder how hard it would be to get financing these days? Last time I checked, my credit score was something like 759. I always pay my credit card in full every month. Relatively tiny mortgage. Yet, about a month ago, I applied for a Shell Mastercard, so I could get a 5% rebate on gasoline, and got declined! Their reasoning was that I had too much open credit.

    I have to admit, that I got a bit spoiled the only time I ever bought a new car. With my 2000 Intrepid, I got it for around invoice, and the term was 0.9% for 5 years. I just checked my credit union, and right now they're at 4.9% for 5 years. Or 4.64% for 36 months. Big whoop.

    I hate the idea of paying that much interest to finance a car, but at the same time, the idea of paying cash scares me too. I guess I'd rather just get into a car in $300-400 increments, rather than lock away $20K or more all at once. So I guess that kind of catch-22 thinking is going to keep me out of the market for awhile.
  • corvettecorvette United StatesMember Posts: 9,580
    "I guess I'd rather just get into a car in $300-400 increments, rather than lock away $20K or more all at once."

    Same here, especially since my cash buffer has dwindled in the past year.

    I got approved for a car loan at Pentagon Federal Credit Union--4.75% for up to 60 months. I think if you have good credit, you can still get a loan.
  • nippononlynippononly SF Bay AreaMember Posts: 12,555
    last two car loans were at 5% or less. I wouldn't buy a car at a higher interest rate than that. Does that mean I am out of the car market for the next decade? :surprise:

    2014 Mini Cooper (stick shift of course), 2016 Camry hybrid, 2009 Outback Sport 5-spd (keeping the stick alive)

  • lemkolemko Philadelphia, PAMember Posts: 15,261
    ...I got 0% financing on my DTS. Girlfriend had 1% on her LaCrosse.
  • mattandimattandi Member Posts: 588
    We came into a bit of money this past winter and paid off our current car. It is 8 years old with about 120k miles on the clock. Lots of issues last year to keep it running. This year has been better.

    We would like a new car, but for the time being we are holding tight. Some poor choices, a job loss, and conscious decision to live on essentially one income has tightened our situation. We are eliminating some older debt, student loans and credit cards. Our credit is not top tier, but improving. We could pay cash for a car, but would rather not, and it doesn't serve us well right now to take out a new loan.

    We rent and would like to buy a house. We have not been in a hurry. We are closely following what is going on there. No new car loan for us until that happens. Maybe within the next few months. On the plus side, we work in the public sector in education, and that opens up a host of attractive programs.

    Credit crunch is a limiting factor, but not a prohibiting one.
  • alamocityalamocity Member Posts: 680
    That depends on the vehicle in question, I certainly don't see lower prices on vehicles.
  • nippononlynippononly SF Bay AreaMember Posts: 12,555
    That's one thing I think we will probably see a lot less of- low interest rate promos on purchases from the automakers - if what I am reading in the papers is true.

    2014 Mini Cooper (stick shift of course), 2016 Camry hybrid, 2009 Outback Sport 5-spd (keeping the stick alive)

  • grbeckgrbeck Member Posts: 2,358
    It's my understanding that loans are still available for customers with good credit.

    From what I've read, the problem is twofold. One, customers with bad credit, or who are upside-down on their vehicles, are having trouble getting a loan. Unfortunately, more than a few auto makers depended on these customers to prop up sales.

    Two, recent economic news, plus this year's spikes in gasoline prices, have made even customers with good credit wary of buying a new vehicle.

    I think this market may just take down one of the domestics, and maybe one or two of the foreign luxury marques.
  • lwitheringtonlwitherington Member Posts: 3
    Does anyone know anybody who has managed to take advantage of the credit crisis and negotiate a great deal on a car? People with cash must be in a strong position at the moment.
  • lemkolemko Philadelphia, PAMember Posts: 15,261
    When I bought my DTS last November, I came armed with three things: a stellar credit rating, a significant down payment, and a paid-off trade. The only thing better would've been a briefcase full of cash. If things were as bad then as they are now, I don't think I would've bothered going through with it at all.
  • fintailfintail Member Posts: 55,782
    The higher end used market in Puget Sound has collapsed...I have noticed several dealers with the same inventory for months.

    Used cars have always cost a little more here, but IMO the quality/condition is often a little better too.
  • isellhondasisellhondas Issaquah WashingtonMember Posts: 20,338
    Not sure what you mean?

    I do most of the MSFT deals here and that certainly isn't the case!
  • volvomaxvolvomax Member Posts: 5,238
    last two car loans were at 5% or less. I wouldn't buy a car at a higher interest rate than that. Does that mean I am out of the car market for the next decade?

    Probably. Unless you want to buy a domestic.
    Or you belong to a really aggressive credit union.
  • bumpybumpy Member Posts: 4,425
    I've always paid cash anyway with no trade-ins, as that cuts about 95% of the potential BS out of the car-buying experience.
  • volvomaxvolvomax Member Posts: 5,238
    You represent a tiny minority of the car buying public.
  • joebertjoebert Member Posts: 22
    I am definitely more tentative to buy. It is interesting to watch the minivan market as some companies have been aggressive, and now have the 09s out, while some have been slow in dropping prices and have a large amount of 08s out.
  • hondarep1hondarep1 Member Posts: 5
    I wouldn't say you're out of the market for the next decade, however if you're considering a newer auto to the household, I would suggest doing it rather soon. Rate hikes are believed to be right around the corner and the vehicles themselves are as low as they can possibly get. If I can help further... let me know. Cheers! -Jeremy- Kirkland Honda, WA
  • hondarep1hondarep1 Member Posts: 5
    With rebates available and many dealers out there hurting for customer traffic, aggessive pricing is everywhere. I would still encourage use your better judgement. Don't let price be your ONLY buying motive. Resale, safety, and reliability should still be strong factors. The honda odyssey hits the mark time and time again. Now, there is "Dealer Cash" being offered and so as dealers we can become aggressive on the 2008's. As the # 2 dealer in the northwest, we have a very attractive inventory. If you need a friend on the inside, just let me know. Cheers- Jeremy. Honda of Kirkland, WA :D
  • nippononlynippononly SF Bay AreaMember Posts: 12,555
    I DO belong to a really aggressive credit union, so maybe there is yet a new car in my future! :-P

    I wasn't planning to be in the market for a few years anyway.

    2014 Mini Cooper (stick shift of course), 2016 Camry hybrid, 2009 Outback Sport 5-spd (keeping the stick alive)

  • isellhondasisellhondas Issaquah WashingtonMember Posts: 20,338
    A"friend" ?

    Can't advertise in these forums according to the rules.

    How about # 1 in the NW? :)
  • mattandimattandi Member Posts: 588
    Selling during the credit crunch

    actually they call it the credit crisis

    Local news ran a story about this a couple of weeks ago. A local BHPH magnate claimed that if they did not have their own financing available, he was certain his business would be off probably 60%. Another local new car dealer said that traffic was down a little, but sales remained strong. Claimed they were having no problems getting folks financed. :confuse:

    A BHPH lot opened up about 6 - 7 months ago near me. They loaded up their lot with SUV's and trucks. Talk about bad timing and less than sterling business acumen. I drove by yesterday and they were loading all the inventory onto trucks and a For Lease sign was out by the road.
  • isellhondasisellhondas Issaquah WashingtonMember Posts: 20,338
    Andre, people like yourself that have good credit will have no problem getting a car loan today. I'm really surprised that Shell turned you down.

    Actually a 4.9% car loan is an excellent rate. You and many others got hooked by those artificial rates. When we see a zero percent rate or a rate close to that, there is always a REASON. These cars aren't selling well so they throw dollars at the interest rates to make the cars attractive.

    The caution here is the fact that cars that are unpopular as new cars typically have horrible resale down the road so the dollars you "save" during the course of the loan you will lose later when you sell or trade the car in.
  • exb0exb0 Member Posts: 539
    So, friend, how much “dealer cash” do you have on 08 Odysseys? :)
  • dave8697dave8697 Member Posts: 1,498
    do you know abpout the new federal program for first time home buyers? It went into effect July 1st and gives you a 15 year $7500 interest free loan towards a down payment.
  • duke23duke23 Member Posts: 488
    isellhonda wrote:
    "Actually a 4.9% car loan is an excellent rate. You and many others got hooked by those artificial rates. When we see a zero percent rate or a rate close to that, there is always a REASON. These cars aren't selling well so they throw dollars at the interest rates to make the cars attractive. "
    It really is, historically it is cheap Every word of isells's post is truth. Ot, but not really, we all have 529's, Ira's and 401-k's so the Wall St. vs Main St argument is rather lame. Was Wall St . guilty ? Yes. Can they make you wish you gave them the money ? Yes again. Hank Paulson was the former ceo of Goldman Sachs. The plan is crappy, it will be porked up, they cannot help themselves, but lest consumer confidence hit the skids, pass and rescind at leisure.
    The preceding was a non-paid non-political endorsement from duke, duke agree's with his statements obviously since he wrote it.
  • graphicguygraphicguy Edmunds Poster EmeritusMember Posts: 13,599
    duke....this was a long time coming. 72 month loans...financing any warm body that walked into the showroom....rolling thousands of negative equity from an old car, into a new sled.

    Some of it is the consumer's fault. Some of it is the financial institutions fault. Some of it is the dealer's fault. I don't expect any dealer's sales person to be someone's "credit counselor". They're there to sell cars. Not to spoon feed a customer on the ill-advised transactions they're about to make.

    But, at some point, someone has to say...."hey, this is a risk we don't want to take".

    The credit institutions are finally saying that right now. It's a shame that someone has to be forced to see economic reality, but we're now at that point.

    The last stat I saw about the approval of new car loans has the dealerships saying they're getting approval for about 60% of applicants. That's down a whopping 30% from where they were a few months ago (90%). I expect that number to go even lower.
    2022 Honda Accord Hybrid Touring
  • isellhondasisellhondas Issaquah WashingtonMember Posts: 20,338
    I guess I'm lucky our store is located where it is.

    Other parts of the country are FAR worse off!
  • dave8697dave8697 Member Posts: 1,498
    down 4% today. Car business grew from 2001-2006 due to home equity used to purchase cars. that is not going to happen for several years to come. Those buyers are gone and not coming back until equity is regrown by another wave of appreciation. That could be 10 years off. Most think homes are still weay too expensive.
    Upside down buyers. Ones without home equity who bought vehicles with the wrong gas mileage. These values dropped big when gas went up. They can't buy now because they owe too much. Ones who have a little equity are not going to lock in $15k of depreciation on a vehicle with 30k miles on it so they can get a better mileage car.
    The potential future job losers. People will lose jobs due to to crunch and collapse. These folk are not in the new car market.
    the american auto industry workers. These folk no longer exist. Living on unemployment doesn't sell cars.
    There will be good car prices for the next few years due to lack of customers. How GM and Ford can survive I can't say. Most people no longer worry if a [non-permissible content removed] car is 1% better quality than the American model. They are worried about whether we are going into a depression and if buying the [non-permissible content removed] car could contribute to the fall. If the big 2 go under, will Japan have the market cornered and be able to double their profits when the recession ends?
  • isellhondasisellhondas Issaquah WashingtonMember Posts: 20,338
    Let's all get in a circle and wring our hands now.

    These things happened to SOME people. Most people were smarter than that.

    Also, it's Japanese cars, not the term you used that many people find offensive.
  • fandiguyfandiguy Member Posts: 101
    Things will be fine, this is a huge setback, but nothing that's gonna cause very much long term damage. The big three won't go out of business-it'll take way more than this to take down them. GM has lost how many billions of dollars, but with some early retirements and a few layoffs (which i'm not saying are good things), can recoup the money to ride out the storm. Companies that have been around as long as those three probably have some ways to avoid financial catastrophe. The average person won't be affected by any of the stuff going on. Interest rates will go up for a bit (they've already started) but not to the point where it'll cost anyone a lot of money, a half point on a car loan isn't enought to put a payment out of reach, and if it is you shouldn't be buying a car in the first place. Everyone just needs to take a deep breath and calm down. My livelyhood depends on people buying and financing cars, but i'm not worried, so Joe hourly worker shouldn't be either.
  • kdhspyderkdhspyder Member Posts: 7,160
    The last stat I saw about the approval of new car loans has the dealerships saying they're getting approval for about 60% of applicants. That's down a whopping 30% from where they were a few months ago (90%). I expect that number to go even lower.

    From an article recently in the NYT Credit crunch / auto industry

    Quote
    The squeeze is particularly severe for customers with less-than-stellar credit scores who need subprime loans at higher interest rates.

    While 67 percent of those consumers were approved for loans in 2007, only 22 percent are getting them this year, according to CNW.

    “The subprime market has, for all intents and purposes, dried up,” said Mr. Spinella.

    Automakers have already experienced a drastic drop in sales of larger vehicles like pickups and sport utility vehicles because of gas prices that hit $4 a gallon this spring.

    But Mark LaNeve, head of North American sales for General Motors, estimates that G.M. is losing 10,000 to 12,000 sales a month because of tighter lending practices.

    “It’s a bigger problem than $4-a-gallon gas,” said James Press, a Chrysler vice chairman. “We have buyers coming in, but they can’t get a loan
    .” Unquote
  • jipsterjipster Louisville, KentuckyMember Posts: 6,228
    Can't advertise in these forums according to the rules.

    OH REALLY? ... Mr. I-SELL-HONDAS. :P

    I guess you'll be wanting to change your username then? How about jipmyhero? :blush:
    2020 Honda Accord EX-L, 2011 Hyundai Veracruz, 2010 Mercury Milan Premiere, 2007 Kia Optima
  • fezofezo Manahawkin, NJMember Posts: 10,384
    Oh, come on! Loads of guys are inhere with a name involving what they sell. They aren't, however, directing you over to their dealership. Bit of a difference.
    2015 Mazda 6 Grand Touring, 2014 Mazda 3 Sport Hatchback, 1999 Mazda Miata 2004 Toyota Camry LE, 1999.
  • andre1969andre1969 Member Posts: 25,254
    Hey, at least he doesn't sell Potiac. ;)
  • fezofezo Manahawkin, NJMember Posts: 10,384
    I hear you can get on a Potiac....
    2015 Mazda 6 Grand Touring, 2014 Mazda 3 Sport Hatchback, 1999 Mazda Miata 2004 Toyota Camry LE, 1999.
  • michaellnomichaellno Member Posts: 4,120
    Some food for thought on your comments

    Granted, that is in a part of the country where domestics haven't sold too well to begin with. Makes you wonder if the Detroit 3 (well, Detroit 2.8) aren't perhaps deliberately trying to reduce the number of dealerships. Or, at the very least, aren't shedding too many tears over the dealerships that are closing.

    Of course, that puts lots of employees out of work. With all the scorn heaped upon the Bill Heard group for its shady practices, people worked at those dealerships. People with families, and mortgages, and health care issues, and other obligations - they are now all out of work, trying to make ends meet in a tough job market.

    I know Chrysler just increased the floorplan charge for their dealers.

    I think each Buick dealership sells less than 6 new cars per month on average. There just aren't enough Lemko's to go around!

    I think it's gonna get worse before it gets better.
  • duke23duke23 Member Posts: 488
    gg agree with your comments, why not 120 months ?
    michaell wrote:
    "I think it's gonna get worse before it gets better. " Well the Gallup poll agrees with you.
    Despite not having yet the first declining quarter of lesser gnp, 33% believe we are in a depression, not the r word. 73% believe things will get worse before they get better. I hope your sales stay strong , but it's a severe credit crunch right now.Senator Harry Reid made a comment today that a large insurance company with a household name, is on the verge of bankruptcy. Every insurance company, even those that only sell life insurance took it badly today. Credit is frozen, commercial paper has broken down and tax free money market funds are yielding over 5% . Pass it, you idiot rebel Republicans. Your Newt Gingrich moment didn't even serve Newt very well. You know all those US dollars our foreign " friends " are holding ?
    It's in US short term interest bearing debt. Let's get them scared that the US financial system is breaking down and after they dump it finance it ourselves. New Edmunds column, How do 15 %car loans affect you ? Wall St., Main street, I have deliberately mis-spelled disgustiated.
    Angst= gone, disgust = unequivocal, congress = corrupt. Best of luck dealers .
  • dave8697dave8697 Member Posts: 1,498
    I paid 9.5% on my first new car loan and 13.5% on my first 30 year mortgage. 11% on my 3rd mortgage, and 10.875% on my 7th 30 year home mortgage. At that point I traded down to a cheaper home and was able to get into the 8.5% range after renting for a year. I paid those high rates for 12 years and with stellar credit. now those rates are associated with preying on people and are attributed to the downfall of the economy. I could think of it as earning 13.5% rate of return when I made a prepayment. That was my best option. Today, things are so much easier to handle.
  • oldfarmer50oldfarmer50 Member Posts: 21,131
    "...Most people were smarter than that..."

    You don't get out much, do you? ;)

    2019 Kia Soul+, 2015 Mustang GT, 2004 Chevy Van, 2000 Chrysler Sebring convertible

  • oldfarmer50oldfarmer50 Member Posts: 21,131
    "...33% believe we are in a depression..."

    A RECESSION is when your neighbor loses his job...a DEPRESSION is when you lose yours.

    2019 Kia Soul+, 2015 Mustang GT, 2004 Chevy Van, 2000 Chrysler Sebring convertible

  • andre1969andre1969 Member Posts: 25,254
    I dunno...most people probably were smart enough not to get over their heads and into ridiculous financial situations. "Most" meaning the majority. Still, enough people got themselves into enough hot water to put a drag on the economy, and it's having sort of a domino effect.
  • andre1969andre1969 Member Posts: 25,254
    A RECESSION is when your neighbor loses his job...a DEPRESSION is when you lose yours.

    Ain't that the truth! Actually, is there a "real" definition for a depression, as there is for a recession? For example, a recession is supposed to be two consecutive quarters of negative growth.
  • 1stpik1stpik Member Posts: 495
    "a recession is supposed to be two consecutive quarters of negative growth."

    That's the textbook definition. Whether we're actually in one at any given time depends on how much faith you put in the government's economic numbers.

    They say we're not in a recession. They also say that inflation is 4%. If you believe that, I have a trillion-dollar "rescue" bill to sell you.
  • lemkolemko Philadelphia, PAMember Posts: 15,261
  • isellhondasisellhondas Issaquah WashingtonMember Posts: 20,338
    Would be the popular models would have 36 month financing and the less popular models would be for 60 months.

    Those dollars have to come from somewhere.
  • nwngnwng Member Posts: 663
    have you look at toyota's vault lately? They can subsidize every 0% deals to accelerate gm and ford's path to ch 11 and they know both of them do not have the resources to offer 0% or huge rebates anymore, here's what I call "everytime when kenny gets killed". The business world is bruuuuutal. the cnn article states rolla, camry, matrix are all eligible (where's yaris and scion?)
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