Vehicle sales in the U.S. are suffering from a “Triple Whammy!

First, the economy has tanked and the unemployment statistics are brutal. Everyone is aware of this. Unemployed folks and folks worried about becoming so are not eager consumers.

Second, the credit system has collapsed along with many folk’s credit score. Before the meltdown over 30% of Americans possessed a credit score in excess of 720. These days, it is anyone’s guess, but with recent events it is unlikely that more than 20 % of Americans possess a credit score high enough to qualify for an auto loan that can be a part of any securitization, let alone a TALF security. Lenders with capital to loan are focused on approvals in the 720 plus category. Even then, down payment requirements are stringent these days.

Thirdly, and not commonly discussed outside the industry, is the fact that pre-owned lenders typically use NADA values to establish the amount they will finance. NADA values seem to be unusually conservative these days. The wholesale and retail markets for pre-owned has strengthened substantially as evidenced by the prices pre-owned vehicles are bringing at auction. But in the face of this market strengthening NADA’s published values have actually declined. This further squeezes consumers’ attempts to gain financing as real values are MUCH higher than those reflected by NADA. The disparity between NADA values and Black Book, has never been wider. Black Book is a close mirror of the true wholesale market. Their methodology of actually visiting auctions and chronicling actual wholesale transactions means their data is much more up to date than any other pre-owned guide available. Unfortunately, NADA has become the “bible” for lenders. Everyday qualified buyers are rejected for financing due to their not being able to raise the down payment to bridge the difference between a legitimate retail price and NADA’s loan value figure.

Add it all up and the pre-owned business is a REAL challenge these days.