enlarge John Ewing/Staff Photographer

The president of Quirk Auto Group, whose dealerships include Quirk Chevrolet, above, in Portland, says Bangor Savings was “a major player in our financing” before it got out of third-party lending last month.

enlarge Jack Milton/Staff Photographer

Salesman Edward Davidson, right, notes features of the car that Barbara Curran,center, of South Portland is looking to buy at Quirk Chevrolet in Portland on Saturday.

 

 

Maine-affiliated banks are joining the exodus of national lenders that formerly loaned money through automobile dealers.

The sudden exit of these leading credit sources is contributing to slumping auto sales by making it harder for Mainers to borrow money for cars and trucks. Typically, seven of 10 buyers finance their vehicles through a dealer, working with third-party lenders and the financial arms of automobile manufacturers.

In the past month, Ira Rosenberg, chief executive officer of Prime Motor Group, said he has received letters from two Maine-based lenders, Bangor Savings Bank and Northeast Bank, and from North Carolina-based Wachovia Corp. Each said they're getting out of third-party auto lending.

"It's a herd mentality," said Rosenberg, one of Maine's biggest car dealers.

These three companies were among the top lenders in Maine during September, according to industry figures. And their departure comes at a time when national lenders, such as GMAC Financial Services, are short of cash and cutting back on the amount of credit they offer consumers.

The overall impact of this credit pullback is hard to quantify. No one keeps a list of who was denied credit and the reasons why.

Also, the wider economic crisis has reduced the number of people shopping for cars. Auto sales fell nationally in October to their lowest level in 17 years.

That said, vehicles typically are a household's second-largest purchase – next to a home. And it's clear that Mainers who want a vehicle and need to borrow money suddenly have fewer, more costly options, especially if their credit histories aren't the best.

CREDIT UNIONS SEE OPPORTUNITIES

As available credit shrinks, dealers are trying to shift to other resources.

At Prime Motor Group, Rosenberg is getting help from Toyota Financial Services. The Japanese automaker is offering zero percent financing on selected models.

Another large dealership, Lee Auto Malls, is relying more on in-house financing, becoming a default lender of sorts for people who don't qualify for conventional loans. Lee also is forging new relationships with credit unions, which see lending opportunities in the pullback by banks.

"They're my new best friends," said Adam Lee, the company's president. "They want to loan money, they have members who buy cars, and I have a bunch of cars I want to sell."

A credit union emerged as the best option for Louis Alexander, a postal worker from Limerick who recently bought a used 2008 Jeep Grand Cherokee from a Portland dealer.

"My credit was a little shaky," he said. "It's not poor, but it's not great."

Aside from outright denials, tighter credit has led to higher rates and less favorable terms from some lenders. Alexander said he could have gotten financing through the dealer, but the monthly payment he was offered was more than he could comfortably afford. Also, all the publicity about big banks going under made him skittish about financing with an out-of-state lender.

In the end, he got a loan from cPort Credit Union, which has branches in Portland, Scarborough and Augusta. The monthly payment, he said, is roughly $100 a month lower than what he might have paid with dealer financing.

"My credit wasn't the greatest," Alexander said, "but I was able to get a good deal from the credit union. They seemed to be more accommodating."

The crunch is happening as lenders in Maine, including community banks and credit unions, are advertising their willingness to loan money. These promotions, however, obscure the trend away from indirect auto loans.

In today's lending environment, many banks see this business as more risky and less profitable, compared to commercial loans and home mortgages.

Their departure coincides with an announcement in October by GMAC. The lending arm of troubled automaker General Motors said it will loan only to...