Credit crash also puts dent in car financing

February 3, 2008 WASHINGTON - Vehicles on display in the Washington Auto Show and in similar venues bespeak an environmentally green motoring future. But they also augur an era of financial brownouts for consumers. The problem is twofold. The easy-credit binge that left many homeowners with foreclosure headaches also has strapped many car buyers with long-term loans on depreciating assets. That means many people owe more on their cars and trucks than those vehicles are worth.

The situation isn’t new. In many ways, it is the natural consequence of borrowing money to pay for something that loses value the moment it is put into use. But auto dealers and manufacturers interviewed at the North American International Auto Show in Detroit last month and at the recent Washington show say the problem is getting worse. Traditional 36-month car loans are traditional only for consumers with the highest FICO auto loan credit scores, dealers say.

That means people with credit scores of 700 and above and people able and willing to make hefty down payments, 18 percent or more, on their loans. Such buyers are likely to retain greater equity in their vehicles at resale, meaning they are likely to recoup more of the original cost. That means those buyers will have more money to acquire a new car or truck with loan terms probably as favorable as those used to finance their original purchase.

But increasingly, consumers either are not qualifying for lower-interest, short-term auto loans or are opting for higher-interest loans, many of them as long as 84 months, according to dealers and studies done by J.D. Power and Associates, a California industrial consulting, marketing, and research development firm. The longer loans are where the problem of being financially upside-down kicks in.