Bankruptcies Up, Lenders Pulling Back: Its Getting Harder To Buy A Car

Implications: On one hand, the automakers are trying to entice customers into their showrooms with gas price guarantees, rebates, and cash incentives, on the other hand, lenders are pulling back by tightening lending standards. Oh, and did we mention, bankruptcies are up 47 percent!

Analysis: Automakers are pulling out all the stops in order to entice customers into their showrooms, offering cash incentives, rebates, zero percent financing, and even dusting off an old program, gas price guarantees.

However, there are a number of factors working against them. In the month of April, consumer bankruptcies were up 47.7% from a year ago, reflecting the growing financial stress faced by American families, faced with household debt and mortgage woes.

Based upon current trends, consumer bankruptcies could top 1 million new cases in 2008.

Car buyers looking for the easy credit that was in the marketplace over the past several years will be disappointed to see their options reduced, if not eliminated altogether.

The captive lenders, such as Ford Motor Credit and GMAC, are looking at significant drops in income in the first quarter of the year.

Ford Credit earned $36 million in the first quarter, compared with $293 million a year ago. A higher provision for credit losses, along with deeper depreciation expenses for leased vehicles, contributed to the drop in earnings.

Results in the black for GMAC's auto finance division and insurance business were unable to prevent the overall company from reporting a loss for the first quarter.

GMAC Financial Services posted a net loss of $589 million, primarily due to losses in its international mortgage operation, Residential Capital.

And, it isn't just the captives that are feeling the pinch. National auto lenders are reporting reductions in origination volume and have tightened their auto lending standards during the first quarter.

Subprime lender Americredit, after suffering significant losses, has taken steps to trim dealer relationships, raise minimum cutoff scores, lower loan-to-value and control other credit costs.

Other national lenders, such as Capital One Auto Finance, Chase Auto Finance and Wells Fargo Financial, all reported losses in the first quarter.

Two of the three, Capital One and Wells Fargo, have reduced loan originations, while all three have tightened loan standards.

All of this does not bode well for the customer looking to buy a vehicle with less than prime credit scores.