Falling home values mean fewer people are taking out home equity loans to buy a new vehicle.
The automakers have tended to soft-pedal the links between the housing crisis and the drop in auto sales, saying that for most prime-risk customers, the drop in home values is more of a psychological effect than a direct relationship.
But in markets where home values were booming before the present credit crisis, like California and Florida, home equity loans have been quite commonly used to finance auto purchases, according to CNW Marketing Research, Bandon, Ore.
“This one deserves repeating,” said Art Spinella, CNW president. “Car sales are being hurt dramatically by the cutback in use of home equity loans as a financial means of paying for a new vehicle,” he said, in a Sept. 5 newsletter.
According to CNW, the percentage of consumers using a home equity loan to finance new-vehicle purchases in California has fallen by almost half, from about 30 percent in 2007, to about 16 percent so far this year; in Florida, from about 20 percent in 2007, to about 12 percent this year.
Some of those consumers simply financed their purchases another way, but some of those probably postponed their purchases. The thing is, the other avenues for financing a car purchase are getting tougher, too.
It’s been well-publicized that the automakers and their captive finance companies are cutting back on leasing. Loans are also harder to get, including higher requirements for down payments.
The latest Federal Reserve Senior Loan Officer survey shows that willingness to make new consumer loans was down 22.3 percent, according to Lehman Brothers auto analyst Brian Johnson.
The percent of banks tightening credit standards rose to 67.4 percent. More than half of the respondents, 52 percent, said they expect tighter credit standards in the second half of this year, he said.
“Indeed, banks are both cutting off non prime borrowers, as well as increasing the risk-based pricing on loans and increasing the minimum down payment,” Johnson said in an Aug. 25 note.
He said increasing down payment requirements probably have the most significant dampening impact on sales.
