Nov 30

Car finance becoming increasingly scarce in Australia

Published in new car financemortgage brokerhome finance by Vicky Edema
The world economic global crisis has had a huge and negative impact on the car finance industry in Australia because the major suppliers of car finance here have recently withdrawn from the car finance market. GE Money and GMAC who are believed to have had at least 60% of the car finance market in Australia have suddenly withdrawn from this market. While GE Money has continued to play in the credit card market where it has been increasing interest rates in Australia (as have many other lenders) in October it announced that it would no longer fund car finance or their third party mortgage distribution channels.

GMAC also announced that it was withdrawing from car finance because the cost of funds was too high or funds for car finance were simply not available. Because of the devastation caused to the finance sector as a result of the irresponsible sub-prime lending in the USA, investors who would normally buy securitised home loans and car finance loans for a good return on their money are now afraid that they may lose money on any such investment. As a result those who are willing to invest in car finance loans or home loans are seeking a much higher rate of return because of the perceived increase in risk. GMAC has advised the market that their cost of funding car finance is now too high and until car finance rates come down they are out of the market. GE Money appears to have withdrawn from the car finance market permanently in that it has put off a large number of staff in both Australia and New Zealand and has announced to the market that it is exiting these areas of its business.

The new car industry will be feeling the ramifications of these decisions in that without readily available car finance, dealerships will find it difficult to reach new car sales targets. Unfortunately the Australian public, or at least those who have been buying new cars over the past 20 years have become used to being able to get 100% car finance on any new car purchase. New car finance is normally structured to include the car finance amount plus a residual or balloon amount which is paid by the borrower when he or she sells his or her car in 3 or 5 years time. The borrower makes monthly repayments which are enough to repay the car finance amount over the 5 year period and when he sells the car the price he achieves is generally sufficient to repay the balloon or residual amount.

It is likely that when buying a new car in 2009 you may well need to come up with a saved deposit. Not something people who have sought car finance in the past have had to worry about. The car finance will still include the car finance amount plus a residual but the general consensus is that if you are in the market for a new car then make sure you have some savings because the car finance is unlikely to be sufficient for you to complete the acquisition.
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