United States automakers are engaged in a struggle to survive and, in their fight to avoid complete insolvency, are making use of drastic, even unorthodox, measures. While, in today’s economic climate, governments bailouts seem neither drastic, nor unorthodox – everybody’s doing it, or so it seems – some of the other steps the big three are taking are certainly unusual.

According to a Bloomberg.com report dated April 2, 2009, “U.S. auto sales tumbled 37 percent in March,” and as unbelievable as it may seem, that was good news. Analysts had expected to see worse, considering that the month before had seen the lowest number of sales in 27 years. The current economic downturn has been exceedingly difficult for automobile manufacturers.

One factor that has made a significant contribution to lower sales numbers is the contraction of credit. As trouble in the credit markets seeped out of the mortgage and lending industry into the wider credit markets, liquidity dried up. This, in turn, pushed lenders into tightening lending standards, which – unfortunately for automakers – translated into significantly reduced sales during a period when their revenues were already suffering from higher rates of delinquent loans as consumers struggled with higher costs of living and rising unemployment and home foreclosures.

The government bailout loans granted to two of the big three near the end of the Bush presidency haven’t been enough to stabilize the industry. Despite receiving federal loans in the amount of $13.4 billion, GM and Chrysler continue to teeter on the edge of insolvency, with recent reports indicating that, even with the potential of further government assistance, for General Motors, bankruptcy is still “on the table.”

Ford didn’t take any money during the first round of government bailout loans, nor is it expected to in the current bailout, a position that certainly has benefits – as the recent situation with the Obama administration influenced resignation of GM chief executive G. Richard Wagoner Jr reflects – though they, too, are still struggling in the current economic circumstances, seeing a precipitous drop in sales. In light of those sagging numbers, Ford is taking an innovative approach to increasing sales.

Ford isn’t the first, Hyundai is doing it as well, nor is Ford the only American automaker using this particular incentive program – GM instituted a similar program after Ford did. However, Ford’s version may be the most generous of the innovative incentive which offers protection to buyers in the event of a job loss and 0 percent financing on some vehicles. According to a Voice of America article published March 31, 2009, “Ford executives said their company would take over payments of up to $700 for as long as a year for buyers hit by layoffs.”

The Associated Press recently reported that “General Motors’ financing arm said Wednesday it will temporarily waive some dealer fees and make $5 billion available for loans to an expanded pool of potential car buyers in a bid to halt the extended slide in U.S. vehicle sales.” This will probably be very helpful to the average consumer in the market for a new vehicle, because many were shut out of the market when, in October of 2008, GMAC tightened credit to exclude those with a credit score of less than 700. Unable to get auto loans, they couldn’t buy cars, and the industry has felt that in their bottom line. According to the article, 70 percent of GM dealerships rely on GMAC for consumer financing.

On April 2, 2009, UPI reported that GMAC “would accept loan applications for borrowers whose score falls under 620, which generally designates sub-prime customers” and said that when the limit was set at 700 and above, about 40 percent of potential customers were shut out of the market. Making access to auto loans more inclusive should help sales, something that GM and the other car makers desperately need. While there are critics pointing to such changes and stating that sub-prime lending is a primary factor in the widespread economic troubles we face today, that is not exactly true. Sub-prime lending can be done in a responsible business manner, and they type of lending that contributed to the mortgage and lending meltdown was not done in a responsible manner, as fee harvesting was the name of the game for many, without caring whether consumers were capable of repaying the loans or not.

Fox News recently reported that FICO has made improvements to its credit scoring system. According to the March 30, 2009, report, “the new FICO 08 score for auto loans is expected to provide a significant increase in predictive power compared to previous versions of the FICO scoring model. Using the new score, auto lenders may be able to identify as many as 5 percent to 15 percent more potential delinquencies among consumers as they could with the previous FICO auto score. Use of the scores can help lenders make better informed decisions to as they seek to increase account bookings while reducing delinquencies and losses.”

Those in the market for a new vehicle would do well to check out the broad range of incentive programs available today. Auto manufacturers are competing against each other to provide consumers with reasons to choose their vehicles above the others. Some are offering unusually good opportunities, in light of the difficulties presented by the economic turbulence that characterizes the market today. However, it is always good to remember the wise consumer only makes the purchase if it makes good fiscal sense for him, not just because it is a great bargain.

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