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Banks and credit unions financing business not too bad, regardless of dealerships

0% financing popular with dealers, consumers

Open a newspaper or turn on the television or radio and chances are there will be something on 0% financing when it comes to cars, trucks and vans.

And while it’s a great deal for buyers who want new vehicles and for many dealerships, the same has not been true for some banks and credit unions who have lost business to dealerships.

Bobby Gray, CEO of Asbury of Mississippi, has eight different Gray-Daniels locations and 12 franchises in Mississippi. He said offering the 0% financing was “like waking a sleeping giant.”

“What it has done for the dealers and dealerships is liquidate our 2000 and 2001 inventory,” Gray said.

Since Gray-Daniels began offering 0% financing at its dealerships, it has had record months.

“We were in a real lull for two weeks after the Sept. 11th terrorist attacks,” Gray said. “When the manufacturers came with low incentives it brought people out. You have to respect the manufacturers going that route, instead of laying people off and closing down plants.”

John Noblin, the state marketing director of AmSouth, said GMAC’s marketing arm was the first to put a plan for 0% financing together and roll it out.

“All the other manufacturers had to jump in line or get left with a deal like that,” Noblin explained. “The initial plan was there would be 0% financing for 60 months on remaining 2001 models. Once folks got in there and the initial surge came through, they cleaned out a lot of the remaining vehicles. Then they made it 0% financing on 2002 models for 36 months.”

But, Noblin said, 0% financing for 36 months is not enough for most people to pay off a $25,000 to $30,000 vehicle.

“When you get into longer financing that’s where banks have competitive products,” Noblin said. “We’ve been able to pick up business on 2002 cars that the banks lost on 2001 models.”

And, Noblin added, 0% financing for 60 months created a good year’s supply of trade-ins.

“This new car, where it dropped off for all banks with that initial offer, our used car financing business picked up,” Noblin said.

While Noblin conceded the 0% financing for 60 months that is offered by dealerships had definite effects on the business done by AmSouth, the door for bank lenders is open again now on 2002 models.

Donna Sims, president of the Madison/Ridgeland BankPlus offices, said BankPlus is not doing a lot of financing for new cars right now, and she believes the 0% financing offered by the dealerships has a lot to do with that.

“But things have slowed down all the way around,” Sims said. “A lot of people are buying cars through home equity products. Banks have an advantage there. I have done some of those for people to use to purchase an automobile or whatever.”

Sims said the advantage for those who used home equity products in order to buy vehicles was that they could write the interest off.

“I think people just tend to be a little more savvy these days so they use any way to cut corners,” Sims said. “Typically you can get a better rate on a home equity loan than an auto loan. Certainly not 0%, but you have the benefit of writing off the interest.”

Sims said another reason some were choosing to go through banks for their financing instead of through dealerships was because they were able to do business with people they know.

“You get your loan through the dealership and it’s going to end up somewhere in New York City,” Sims said.

Sims said the low rates would not hurt banks’ business in the long run though.

“The dealerships’ rates as we see them today, it’s a temporary thing,” Sims said.

Charles Elliott, president and CEO of the Mississippi Credit Union System, said he too had seen some reduction in the amount of business he does with car financing, but said the credit union was still making many new car loans.

“Rates are just naturally lower right now for everyone, but I think the customers right now are getting smarter,” Elliott said. “There are some restrictions for the 0% car financing. They realize they may be better off taking the discount and getting financing elsewhere.”

And then too, Elliott noted, some consumers do not qualify for the financing offered by dealerships.

“I know we had the largest increase I think ever in consumer spending this past month and the bulk of that was the automobiles,” Elliott said. “People tend to buy when there’s some incentive to buy.”

Contact MBJ staff writer Elizabeth Kirkland at ekirkland@msbusiness.com or (601) 364-1042.

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