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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: mishedlo who wrote (4472)	1/6/2004 11:08:56 AM
From: ild	Respond to of 110194

The industry's efforts to sustain sales volumes during the recession have contributed to a financial hangover for many consumers, who signed up for discounted, long-term loans on new vehicles and now owe more than those cars and trucks are worth. Bob Kurilko, vice president at Edmunds.com, a car-information company, says that nationwide nearly 30% of new car buyers have so-called negative equity, or owe more than the vehicle is worth. That figure is even larger in some crucial car-selling states, such as California and Texas, where 40% of car buyers have negative equity, he says. That's why, for many customers, cash rebates are the only way to get into a new car. Darrin Chrisman, general manager of Bradenton, Fla.'s AutoWay Ford, part of AutoNation Inc., the country's largest dealership chain, says at his dealership rebates are now almost always used to pay off debt on a previous car. He doesn't think the Big Three will be able to pull back on incentives. "We can sell a lot of cars, but getting them financed is another thing," says Mr. Chrisman. Rebates help make financing possible, he says. He estimates that between 70% and 90% of his Ford customers owe more than their vehicles are worth. Without the auto maker's big cash giveaways, he wouldn't be able to sell them new cars. Mr. Chrisman volunteers a typical scenario. A customer brings back a vehicle after two to three years. They have an Expedition, say, and want to trade up to the newer one with a flat-folding third-row seat. Given the short time they have had the car, and the heavy incentives on it the past several years, they owe $4,000 more than the vehicle is worth. "The rebate covers up most of the negative equity," says Mr. Chrisman. To keep a similar payment to their current one, he adds, most are seeking longer-term loans. The average car loan is now more than five years, according to Mr. Kurilko. But some dealers are putting people into eight-year loans, risky for both the consumer and the lender, he notes, since the aging vehicle is the asset backing the loan. Just a few years ago, five years was considered a long loan. online.wsj.com