WASHINGTON – Zero down-payment. Zero percent financing. Specialists in bad credit, no problem with bankruptcy, all applications accepted — the gimmicks that car dealers use to attract buyers might also explain the state’s relatively high rate of car loan delinquencies.
But dealers concede that that’s only a guess. They said they were surprised by recent numbers from the American Bankers Association that show Maryland’s loan delinquency rates are more than double the national rate, and the dealers cannot say for sure why that is.
“I can’t imagine why we have a higher rate than the national,” said Steve Moss, sales manager of Penn Pontiac-GMC in Baltimore. He said he had nothing in his financial records to indicate that the problem is worse, or why it might be.
“We have no concrete answer to explain why,” said Travis Martz, director of communications of the Maryland New Car and Truck Dealers Association.
The ABA reported that delinquencies for cars financed through dealerships reached 3.76 percent in Maryland in the last quarter of 2003, compared to 1.8 percent nationally. The national rate was also 1.8 percent in the second quarter of 2003, when Maryland’s rate was 4.26 percent.
Despite the disparity, area car dealers said there is no cause for alarm.
Frank Santone, finance director of Sheehy Chevrolet in Upper Marlboro, said that any delinquency under 4 percent is acceptable. Other dealers said that, according to what they see in their own finances, loan delinquency is not that bad at the moment.
A debt is considered delinquent by the ABA when payment is 30 days past-due or after two billing cycles without payment.
Santone said a possible explanation for the higher delinquency rates is that offering no down-payment, zero percent financing and other promotions may attract people who cannot really afford the payments. Another possibility is that dealers are willing to risk more and are not as selective as in other parts of the country — or as selective as they are expected to be.
Chan Khoun, finance director of Herb Gordon Subaru in Silver Spring, agreed with Santone that there are some risk-taking dealers around, but he said dealers generally look to a buyer’s credit record when deciding whether to approve small or large down-payments — or not to approve at all.
“We do business in a way that is going to help us,” he said.
Martz said business has been “relatively good” in the state in recent years, but that changes in the economy, such as the loss of jobs, could be driving up credit delinquencies.
By contrast, auto loans made by banks had lower delinquency rates in 2003 than loans made through dealers in Maryland, and the state banks’ delinquency rates were lower than the nation’s in all quarters of the year. In the last quarter, for example, banks’ car loans were delinquent 2.19 percent of the time in Maryland compared to 2.45 percent of the time nationally.
Martz said the dealers association cannot explain that difference, because dealers work with banks to obtain the best possible conditions for their clients.
Keith Leggett, an ABA economist, said another possible explanation is that the delinquency rates could include delinquency experienced by Maryland dealers but caused by buyers from neighbor states. But, while he defended the ABA’s numbers, he, too, conceded that he could not explain them.
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