Consumers would rather save their green than buy green.
Recent incentives to promote hybrid and fuel-efficient vehicles have met with limited success, lenders told Auto Finance News.
“People are just holding on to their cars,” said Carl Roer, vice president of lending at Sound Credit Union. “Hybrids cost a little more, and people are watching their dollars carefully.”
Sound Credit Union offers members a 0.25% rate discount on loans for hybrid and low-emission cars. Since the program started, auto loan volume “has gone up, but it has not been that great,” Roer said. “The overwhelming majority of our car loans are traditional.”
The Tacoma, Wash., credit union originates about 100 auto loans per month among its 37,000 members; its auto portfolio totals $95 million.
Truliant Federal Credit Union, too, saw just a small jump in loan volume when it debuted its Fuel Efficient Auto Loan on July 1.
“We got several applications on the first day,” said Troy Martens, vice president of consumer and real estate lending at the Winston-Salem, N.C.-based credit union. “I thought there would be many more people [applying for the loan]. I was hoping for a 5% to 10% lift in volume.”
Truliant’s green auto loan product — a 50 basis point discount off the loan rate — is available on any new or used vehicle that gets at least 29 miles per gallon. The Fuel Efficient Auto Loan also offers financing as high as 135% of the vehicle’s value.
There are two primary reasons for the higher-than-normal loan-to-value ratio. For one thing, “the collateral value will still be there,” Martens said, referring to the fact that fuel-efficient and hybrid vehicles will likely retain their values for several years. Also, the product is meant to help credit union members who might be upside down in their current loans.
With 181,000 members, Truliant has a $400 million auto loan portfolio.
Union Credit Bank (UCB), a small, community bank, also offers a half-point discount on current auto loan rates for buyers of hybrid vehicles. Its green loan comes with a 63-month term; payment is waived for the first three months, though, as a grace period. The Miami financial institution is a member of the United Nations’ Environment Programme Finance Initiative to promote investment in clean and renewable energy.
At UCB, auto loans comprise less than 5% of the total portfolio, said President and Chief Executive Fernando Capablanca. The bank does mostly wholesale business, targeting its loan product to medium- and small-sized companies in need of fleet vehicles or executive cars.
Meanwhile, Aloha Pacific Federal Credit Union’s Go Green Auto Loan was aimed at “pushing economy-size cars,” said Dane Shimabuku, dealer finance manager in charge of the indirect lending program. The Honolulu credit union offers a 0.25% rate reduction on the loan.
For the most part, lenders are offering these loans to lure potential car buyers who either want to buy cars to improve their gas mileage or who want to help the economy.
“We want to push the Go Green [Auto Loan] to help the economy,” Shimabuku said. “Small cars make more sense. SUVs — there’s no need for that.”
Aloha Pacific’s dollar amount of originations has fallen off a bit as members opt for the Go Green loan, primarily because the purchase price of economy cars is lower than that of SUVs or light-duty trucks, he said.
The credit union, which has 26,000 members and a $58 million auto loan portfolio, originates 75 to 100 auto loans per month. Loan volume hasn’t gone down, but there has been a “drastic drop-off in [the volume of] SUVs and trucks,” he said. Meanwhile, the credit union has seen a 25% increase in loans for compact cars like Corollas and Scions.
“A lot of people are trading in their guzzlers and trying to downsize,” he said.
The credit union offers a 0.25% rate discount for its Go Green loan.
The current credit environment has some lenders tightening their wallets, too. Sound Credit Union, for one, halved its green incentive about six months ago. “We started at 0.5% discount,” Roer said. We are being impacted like everyone because of the economy. Our margins are being squeezed like everyone else’s.”
Meanwhile, Bank of America Corp. has taken a different approach, offering its incentive program to employees. BofA employees who buy hybrid vehicles get a $3,000 rebate on new hybrid cars and a 0.5% discount on loans. Since the rebate program’s inception last year, 2,284 employees have taken advantage of the rebate. Volume has remained steady, said spokeswoman Julie Westermann.
The capital markets will recover although pinpointing a time frame is difficult. I believe of greater concern is the pending legislation in both the House and the Senate. If approved, the bills will change the landscape of subprime financing as we know it. Here are some of the bills in question:
HR 1640/S 582 – Interest Rate Reduction Act-Amends TILA to prohibit the APR applicable to any consumer credit transaction from exceeding 15% on unpaid balances, inclusive of all finance charges.
HR 2309– The FTC must “consider” adopting rules that would:
• restrict post-sale changes in financing terms;
• give consumers the right to rescind a sales contract within a specified period after receiving the final information regarding the terms of the sale or financing; and
• limit the ability of dealers to receive compensation for arranging financing or assigning a credit contract based on the interest rate, the APR, or the amount financed.
S 255 – Empowering States’ Right To Protect Consumers Act of 2009
– Amends TILA to limit the APR applicable to any consumer credit transaction (other than a residential mortgage transaction), including any associated fees, to the maximum rate permitted by the laws of the state in which the consumer resides.
– Would empower the states to set the maximum annual percentage rates applicable to consumer credit transactions.
S 257 – Consumer Credit Fairness Act
– Amends federal bankruptcy law to require the bankruptcy court to disallow any claim arising from a “high cost consumer credit transaction.”
– For secured creditors, the disallowance of the claim will extinguish their lien on the collateral securing the transaction, leaving such creditors with no claim against the bankruptcy estate or
High cost consumer credit transaction: • An extension of credit resulting in a consumer debt with an applicable APR, including related costs and fees, that exceeds, at any time while the credit is outstanding, the lesser of: – the sum of 15% and the yield on U.S. Treasury
securities having a 30-year period of maturity; or – 36%