Welcome to the 2 nd Issue of the INDIRECT LENDING ADVISOR, your update for the latest in Indirect Lending Industry. Working with independent dealers – can be rewarding – but there are risk(s).

INDIRECT LENDERS BEWARE
In this age of “Identity Theft” and “Fraud”; make sure that your Loan Research includes a heavy “emphasis” on VERIFICATION.
If there are indications that Income, for example, is NOT in-line with employment position (i.e., house painter making $80k) CALL/SURVEY/VERIFY .
It is IMPERATIVE that borrower information (income, employment, home address, etc.) along with vehicle detail (run – CAR FAX) – BE VERIFIED.
With regard to small – Independent Used Car Dealerships – make sure your lien is PERFECTED prior to funding.

Ford, GM Extend Incentive Deals to Clear Out 2004s
DETROIT -- GM and Ford have planned big 2004 clearance sales for the last week of September. Both automakers are offering six-year, zero-percent interest loans on most 2004 models.
GM's financing offer does not apply to Cadillac, Saab and Hummer, reported USA Today . Ford's promotion excludes the Thunderbird.
Last month, GM said it had an inventory of about 1.15 million vehicles, according to the Detroit Free Press . Almost 60 percent of that inventory was made up of 2004 models. Ford's inventory was about 790,000 vehicles, 60 percent of which were 2004 models. Both automakers have already cut their production targets for the fourth quarter.

Longer Loan Terms Concern Dealers
Some dealers are concerned about the 72-month loan deals being offered this week by Ford and GM. While the deals will help clear out 2004 inventories, they will also keep car buyers out of dealerships for six years.
Carl Galeana, owner of Van Dyke Dodge in Warren, Mich., and two other dealerships, predicts the GM and Ford deals will offer a necessary boost to sales, according to the Detroit Free Press . However, Galeana said the loan terms are too long.
Galeana said most people locked into long-term loans want a new car before the term is over. They roll the balance into another long-term loan on a new vehicle to keep payments down.
"Then you need more incentives," said Galeana. "It's an ugly, vicious cycle."
Analysts think that, despite these deals, the Big Three will still struggle for sales, reported the Detroit Free Press . Banc of America Securities analyst Ronald Tadross predicts that domestic market share will have declined 1.3 percent in 2004. Ford will lose 2 percent while GM and DaimlerChrysler will see slight gains, said Tadross.

6-Year, 0% Loans Make No Dent in Sales
Ford Motor Co. and GM's six-year, 0 percent loan offerings at the end of September had a small impact on sales for the month. Last week's clearances brought customers into showrooms, but only one to two percent of Ford buyers took the loan deal.
"Obviously, the availability of 72 months was limited to very high-quality paper, and that was one thing that limited its take rate," George Pipas, Ford Motor Co. sales analysis and reporting manager, said to Automotive News.
GM offered their loans the last three days of September; Ford offered theirs for five days.
GM's 0 percent program didn't make a large impact either, according to Paul Ballew, director of market and industry analysis. GM's 72-month retail loans were about 22 percent of all GM's retail loans, up from a norm of 20 percent. GM has not tabulated how many of those were 0 percent loans.
Irma Elder, CEO of Elder Automotive Group in Troy, Mich., told Automotive News customers chose other options over the six-year, 0 percent loan because many did not want to be financed for that length of time.

Consumers Need Incentives to Purchase Cars
AutoVIBES, a monthly study from Harris Interactive and Kelley Blue Book Marketing Research, revealed late September that as the frequency of manufacturer vehicle incentives rise, so has the car-buying public's dependency on them.
The study reported that 50 percent of the U.S. adults in the market to purchase a car within the next year said they aren't likely to buy a new vehicle without an incentive, rebate, or special financing. Almost 40 percent of those noted they are heavily dependent on incentives.
Both of those measures are at their highest levels ever. Representatives of Kelley Blue Book said incentives draw people who cannot afford a car into the market and put people upside down in their loans. These buyers now depend on large rebates to help them recover.
Incentives are expected to remain high over the next year because of the large inventories of 2004 vehicles still left on many dealer lots and the arrival of new 2005 models.

Leasing on the Rise
DETROIT – Leasing made up about 14 percent of the Big Three's new vehicle sales in the second quarter of 2004, up 6 percent from a year ago. The Detroit automakers are expanding their lease deals as used-vehicle values improve. Leasing has been an attractive way for them to deal with excessively high inventories.
Across the industry, leasing made up 20 percent of new vehicle sales in the same period, up 2 percent from a year ago, reported Reuters. Foreign automakers such as Toyota and Honda are also offering some enticing lease programs, according to Art Spinella, president of CNW Marketing Research. Honda has a three-year lease on its Accord Sedan for as low as $189 a month.
Some of the cars turned in at the end of a lease are getting sold back to customers as factory-certified used vehicles. “It is very lucrative,” said Spinella. “It is a pretty good profit generator for the auto companies.” These cars are backed by factory warranties.

NADA Against Markup-Cap Laws
Charley Smith, chairman of the National Automobile Dealers Association, said the NADA doesn't support legislation to regulate dealer reserves. Smith spoke at a recent Detroit Automotive Press Association meeting.
Regulation is unnecessary because the industry is taking several proactive steps to address the alleged abuses in the F&I office, according to Smith.
"We are active on two fronts: dealer education and consumer education," Smith said. "By educating consumers and making sure our employees are committed to treating customers ethically, we will be doing our part to ensure a level playing field in the automotive credit marketplace."
There are several initiatives to educate consumers with literature about financing. For example, Smith said NADA is publishing "An Insider's Guide to Car Financing" in TIME Magazine that should reach 4 million next month.
NADA's dealer education efforts include promoting its Code of Ethics, encouraging AFIP F&I ethics certification and providing the F&I training video "F&I: Absolute Integrity...100% of the Time."
The competition in the marketplace should also keep financing practices in check. "If ever customers believe they did not get a good-enough deal, they can refinance elsewhere without penalty," Smith said.

Ford, GM Carried by Finance Units
Despite hefty losses on the automotive side, both Ford and General Motors posted profit in the third quarter because of strong performance from their respective credit arms.
Ford Motor Co. reported a net profit of $266 million for the third quarter. Ford Credit's net income was $734 million, up $230 million from a year ago. On a pre-tax basis, Ford Credit earned $1.2 billion in the third quarter while Ford's worldwide automotive sector suffered $609 million in losses.
GM reported a third-quarter net income of $440 million. GMAC's profit of $656 million offset the automotive operations' loss of $130 million. GMAC's earnings were up $26 million from the same time a year ago. Lower credit losses and improved lease residual results were more than offset by lower net margins on stable asset levels.
"GMAC once again delivered very impressive financial results, in spite of the more challenging interest rate environment," said Rick Wagoner, GM chairman and CEO. "GMAC has done an excellent job diversifying its earnings base across its portfolio of global businesses, and also diversifying its funding base through new sources of liquidity both here and abroad."
"Competition in the automotive business around the globe remains intense, and we are seeing negative pricing in most major markets," Wagoner said. "Even though we increased market share in all four regions, our automotive earnings in the third quarter reflect these challenging market conditions, and were frankly disappointing."

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