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What Really Happened to Automotive Lending in 2011?

The automotive industry has changed over the past 4 years mainly due to the lack of lending. Pre 2009 lending guidelines were aggressive and flexible. Lending Institutions across the country were giving automotive dealerships free lunch, golf outings, and trips to pro baseball and football games as a way to entice them to send more business.

Now lets take an in-depth look at just how the lending institutions work. First, you must understand that 95% of all indirect lending institutions have what is known as “Field Reps” or Bank Relationship managers. These people are paid a base salary (that most people could not live on) then they get a commission per loan that the dealerships send to them for financing. Thus, you have the perfect storm once again self-inflected by the lending institutions.

So, lending institutions were sending employees into these dealerships to in essence “bribe” dealerships to send them more loans for approval. Well, let’s look at what happened once all of these bad credit car loans started to have customers default on the loans? First of all, the lending institutions started blaming the dealerships for these defaults. I know it sounds crazy but they really did. They aggressively approved all of these loans but when they went bad they started blaming certain dealerships.

Now why would they do that?

The answer is very simple. These fat cats wanted to keep their job, insurance, and retirement packages so when they started receiving heat from the powers to be. They started blaming the car dealerships for sending them loans that didn’t pay. Now in my house most families understand that if they approved a loan and charge a customer 29.99% interest rate then you would think that they would know the customers are most likely not going to all pay on time. By blaming the dealerships they started telling certain dealerships that they are going to have to pull their agreement and cannot do business with them. Let me explain what that means. If you have two dealerships side by side and a customer with bad credit walks into the first dealership and the banks will not conduct business with that dealership (because they send them bad customers) then they will turn that customer down for a loan. However, the same customer goes to the dealership next door and the banks are conducting business with them then they will approve that loan.

To put all of this together the lending institutions are still making loans to customers with bad credit however, they are picking and choosing what dealerships and what brands they want to finance, thus making several dealerships have to close their doors every year and violating our most sacred value in America today. They are choosing who and what product they want to succeed in this difficult market.

Even though most of this is unfair to most of us from the outside looking in, this is why it is important for those with bad credit to shop for a pre-approval online before shopping in today’s market.




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