STOCKTON — Auto sales in the Central Valley are finally shifting out of neutral. Area car dealers are seeing large sales increase, some witnessing sales growth not seen since before the Great Recession.
“We’re up 30 percent year over year,” said Stockton’s Big Valley Ford Managing Partner Steve Kubitz. “We have seen increases since 2011, but we just had our best January since 2006.”
Kubitz credits several factors for the increased activity. A big part of the boost for Ford dealers has come from new models of popular cars such as Mustangs and crossovers.
“We sell 60 to 70 of the old models,” said Kubitz. “With the new ones, we are going to be selling 200 this year. A lot of our sales have been driven by the new models.”
Gas prices were also providing at least a psychological lift. Over the winter they sunk to levels not seen since 2009
“I think it’s given people more money in their pocket,” said Kubitz. “It’s definitely helped.”
One thing gas prices haven’t changed is the kind of vehicles that people are buying.
“We haven’t really seen gas prices change the cars people buy,” said David Halvorson, president and owner of American Chevrolet in Modesto. “We’ve always sold the SUVs and trucks because it’s a different lifestyle out here than in the Bay Area. Those vehicles just serve our lifestyle better.”
While American Chevrolet hasn’t seen the kind of sales jump experienced in Stockton, there has been a noticeable bump in business.
“We had a nice increase [last year], 14 percent and so far we’re up about 12 percent this year,” Halvorson said. “It’s not at the highs it was pre-recession levels, but it’s certainly more fun than it was.”
The biggest part of that increase can be attributed to easier financing. Combine that with the fact that the recession forced people to keep cars much longer than they might have wanted, and many people are getting off the fence and making purchases.
“The banks are getting a lot more liberal in their lending practices again,” said Halvorson. “There is also an uptick in credit union lending.”
The hyper competition among lending institutions has been helpful for consumers and put more buyers in showrooms, dealers said.
“We did $3.6 million in car loans in January,” said Financial Center Credit Union President Michael Duffy. “You have a larger number of lenders with a lot of money out there.”
Financial Center Credit Union has seen its lending go up approximately $400,000 per month with the latest sales boom. Duffy said competition has led to situations where buyers can often shop around and find very low interest rates.
“Before, the only one we had to worry about was when the dealer would make a special promotional rate,” said Duffy. “Now you have that same options from the dealer, and you have many more indirect options which put very high pressure on pricing these loans.”
Auto loans are making up a large part of Financial Center Credit Union’s loan portfolio. Currently $76 million of a $186 million loan portfolio comes from auto loans. Nationally auto loans make up approximately 32 percent of all loans made by credit unions.
While credit unions can sometimes provide better deal for consumers, they often struggle with the perception of being closed off to the public at large.
“It’s more open than it used to be,” said Geeta Avila, director of lending at Mocse Federal Credit Union. “We’re kind of a little secret.”
Many credit unions that started to serve a particular industry or employee group have expanded to serve people within a geographic area.
“Many people don’t realize they can join a credit union,” said Avila, whose organization serves people in Stanislaus, Tuolumne, Mariposa and Merced counties.
While credit unions lack the size of large traditional banks, they are also free of stockholders which can give them more freedom in their lending practices.
Whether borrowers choose a traditional bank or a credit union, everyone agrees that lenders are now more motivated to make loans than they have been in recent years.
“Because of the interest rates, we need to make more loans to get the same return on the money we lend than we did several years ago,” said Avila. “For every one loan we made in the past, we need to make three now.”
Buyers are winners of that competition, getting rates that would have been impossible just a few years ago.
“It seems like everyone who comes in has a pre-approval in their pocket,” said Gregg Arends, director of sales at Lodi Toyota. “There is no doubt, car sales are great right now.”
The lending boom doesn’t appear to be ending soon as the Federal Reserve has indicated its intention to keep rates low for at least the next year.
“If you have have super good credit, you can get money cheap,” said Halvorson. “There is no doubt the institutions are fighting over customers.”
Even the “subprime” loans are becoming popular again with some banks bundling car loans to be sold off similar to the way that home loans were bundled in the mid 2000s.
“What will be interesting to see is are they [lenders] going to stay true to the principles they went back to [during the recession],” Halvorson said.
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