Car Loans

An $809 Car Payment, a $660 Income: How Dealers Make the Math Work


One one hand, this is just the same thing as happened 2003-2007, ending in the financial crisis of 2008. Anyone who has seen "The Big Short" and the discussion with the mortgage brokers will recognize it. Outright fake applications, lenders who do not care because they are offloading it in a few months.

Those of us who have worked in loans have seen it. Dealers call the people a "get me done" because they have to take what the dealer says to take to make the financing work. More than once was the time I would say, "You're salesman there? Put him on. Hello? Yeah, 120% LTV, Black Book Value, call me back when you make it work, OK? No, no need to ask for me, anyone can help you. Yeah, you have a good weekend, too."

On the other hand, I do not care how little English you speak or how fast the dealer made you sign. If you are making $20,000 a year and you are looking at a car that cost $35,000; bells should be going off.

For many reasons, this will not get to what mortgages did in 2008. It might mean lots of cheap cars to choose from for those of us who buy used. But how many times do we have to see this movie?

33 years doing car loans, I hear about this a lot from other F&I managers and customers. It’s grounds for termination where I work. I had one salesperson falsify income. No second chances, you’re gone. I don’t look good in stripes. I always do a customer interview, verify all information. It only takes a minute, and it catches things like inaccurate spelling of name, addresses, etc. In all my time, I’ve only had one instance of a customer “getting a raise” from a salesman (usually they give them to themselves). But, that is more about the places I work and who I choose to work with. There are good places and bad places. I don’t play those games. But lots of people do.

Second thing is “power booking”. On some brands (Nissan, Mazda), you can’t tell an “S” model from a “GXLE” by the VIN. Or, the car might sprout alloy wheels and a sunroof when it used to have steelies and a solid roof.

Third, and far, far more common: customers providing false proof of income. Some of them are laughable, but others are really, really good. There are hundreds of websites that will generate fake paystubs, w2s, and 1099s. Also, scams where a customer from out of state needs to buy your car, but has to have it NOW so they are going to send an agent with POA... fake licenses... I could go on and on. And customers who generate an OFAC hit. And customers with bags of money that smell like weed, but won’t provide a SSN (for the 8300). A SSN isn’t required for the 8300, but not having one generates a suspicious transaction flag.

Oh: and straw purchases, where someone with passable credit comes in and buys the car, but their girlfriend/brother/friend is actually driving it and paying for it. That is really hard to catch, because they’ve usually been prepped on the questions and answers. It’s not illegal, but it is a violation of our lender agreements, where we would have to buy the car back.

People do it because they’re lazy. It’s easier to change a number than it is to talk someone into a deal, or explain to a customer that they need a co-signer, or need to drive an hour each way to get their paystub and proof of residence. Me, I don’t want to have to remember all the lies I’ve told, so I don’t tell any.

Quote: Mosca

There are good places and bad places.

I assume these people will go to the place in town that will make the deal. So even if you had 9 good places, 1 bad place will take up these kind of deals.

Quote: Mosca

33 years doing car loans, I hear about this a lot from other F&I managers and customers. It’s grounds for termination where I work. I had one salesperson falsify income. No second chances, you’re gone. I don’t look good in stripes. I always do a customer interview, verify all information. It only takes a minute, and it catches things like inaccurate spelling of name, addresses, etc. In all my time, I’ve only had one instance of a customer “getting a raise” from a salesman (usually they give them to themselves). But, that is more about the places I work and who I choose to work with. There are good places and bad places. I don’t play those games. But lots of people do.

I buy that on good dealers/bad dealers. One would think with the modern "Auto Group" concept that there would be way fewer "bad" dealers. Always going to have people lie at least a little about what they make, that happens. Even if a salesman saying, "well, you get OT, right???"

I think my thing is just SMH at the crazy treadmill people keep putting themselves on. I saw it when I did car loans and it was bad enough, I cannot imagine working at a dealer. Nobody wants to drive below their means. Maybe we got this 1/5 to 1/10 like myself who refuse to buy into the whole thing. People say I have a "nice car" now and it feels weird. Then I hear how many new cars are leased, how we will soon be > 72 months on the median car loan. It is no wonder this happens.

Quote:

Oh: and straw purchases, where someone with passable credit comes in and buys the car, but their girlfriend/brother/friend is actually driving it and paying for it. That is really hard to catch, because they’ve usually been prepped on the questions and answers. It’s not illegal, but it is a violation of our lender agreements, where we would have to buy the car back.

I am going to politely ask for more info here. I buy the car, it should be mine to do what I want with (I will not go into my feelings on straw buying for export.) If I put my credit on the line to buy a car, why should the lender care who drives it? I could see insurance caring, but why the bank much less the dealer?

It's not who is driving it, it's who is paying for it. Like I said, it isn't illegal; you can do what you want, no matter how foolish. But the lender is not granting credit to the one who is making the payments. So they buy the contract under false premises, and as part of the dealer agreement can force repurchase.

Quote: Mosca

It's not who is driving it, it's who is paying for it. Like I said, it isn't illegal; you can do what you want, no matter how foolish. But the lender is not granting credit to the one who is making the payments. So they buy the contract under false premises, and as part of the dealer agreement can force repurchase.

I'm missing something here.

"The lender isn't granting credit to the one who is making the payments."

I don't get how there is an issue if the note is being paid.

Quote: rxwine

I assume these people will go to the place in town that will make the deal. So even if you had 9 good places, 1 bad place will take up these kind of deals.

That's about the size of it. But I would ask, of the woman in the original article: what the hell are you doing, applying for a car loan with $800/mo income? She knew what was going on. I guarantee it.

Quote: Mosca

That's about the size of it. But I would ask, of the woman in the original article: what the hell are you doing, applying for a car loan with $800/mo income? She knew what was going on. I guarantee it.

I don't really have an issue with the individual who should be able to figure out subtracting their bills from their income.

I think the problem as stated, is the total accumulation of bad loans and how it can affect all of us. It's just like big banks. Should we let them do lots of bad business if it can come crashing down on all of us when several bad elements eventually come together at just the wrong time?

Quote: rxwine

I don't really have an issue with the individual who should be able to figure out subtracting their bills from their income.

I think the problem as stated, is the total accumulation of bad loans and how it can affect all of us. It's just like big banks. Should we let them do lots of bad business if it can come crashing down on all of us when several bad elements eventually come together at just the wrong time?

Car loans should not cause near as big a problem for both the shorter term and lower principal involved. Talking 72 month paper and most loans will go several months before being written off. But I could see it seizing up the auto loan market. Few crazy things going on in autos, not certain Ford and GM see the other side of the 20s.

Quote: AZDuffman

I'm missing something here.

"The lender isn't granting credit to the one who is making the payments."

I don't get how there is an issue if the note is being paid.

That's the point. They have a huge default rate. The true buyer has bad credit already. And those people usually have social issues as well, so killing off a friendship/relationship/family bond over a car loan is immaterial to them. And the person who signed the contract isn't going to pay for someone else's car.

Bottom line, people can be really stupid.