Are Chrysler And Fiat Guilty Of Dumping Low Quality Cars On People With Bad Credit?

You have absolutely no idea what you are talking about and should stick to posting articles about cars and not consumer credit. The Fiat manufacturer is not lending to these people, they are selling cars. Banks and auto finance companies (like Americredit, Santander USA, Chase, Capital One) are providing the loans. When you get an auto loan, the dealer does not call up the manufacturer for a loan, they call up banks and finance companies.
And instead of blaming these entities you should probably thank them for extending credit to these subprime consumers so that they can get to work and get out of the financial ruts they are in.

No, sorry, YOU'RE wrong. Chrysler-Fiat doesn't have a captive finance company, but they have a de facto captive relationship with Ally, who is providing a significant percentage of the loans on these cars.

What's more, your point is off base. Chrysler's combination of financial incentives and marketing is designed to encourage subprimes.

Finally, and most importantly, Chrysler has guarantee agreements with Chase, Ally, and others. I'ts called "incentivized business."

http://www.autonews.com/article/20110817/FINANCE_AND_INSURANCE/110819909

Just because they don't own these lenders doesn't mean they aren't underwriting the notes. YOU should stick to what you know before commenting.

I do know what I'm talking about I work with auto lenders all the time. I own a few. And Chrysler did not renew their relationship with Ally on 4/30/12.

The financial incentives encourage all people to buy cars. Because interest rates are so high for subprime auto loans it so happens that these customers are cross shopping USED cars with NEW Chryslers.

The fact that Chrysler doesn't own these lender is the EXACT reason why they are not the one's underwriting the notes. It's not Chrysler's money being lent out.

You need to realize that if the subprime customer wasn't buying a NEW Chrysler, they would still be taking out a loan - only it would be to buy a used car. And Chase or Ally would be financing it.

If you think about it, the subprime customer is actually winning, because they are at least getting a new car with a warranty versus another brand's used car without one.

It seems like whenever the word subprime is used people get all worked up without thinking anything through.

My main point stands - Chrysler-Fiat has agreements with both Chase and Ally to incentivize lending. Whether you call it a rate buy down or "risk mitigation," it's still Chrysler-Fiat handing cash to a bank to encourage them to make a loan.

As for your point that Chase or Ally would take subprime loans on used cars, you're glossing over two key details:

1. Chase and Ally require a bigger down payment on used cars than on new cars, because Chrysler-Fiat has a rebate. That means it's easier for a subprime buyer to get into a new car than it is to get into a used.

2. The rates on new cars are *always* better than the rates on a new car - even on subprime notes. The monthly payment is often lower on a brand new car than it is on a recent model year used. At worst, the payments are the same...once again encouraging buyers to go new.

Finally, just because Chrysler-Fiat isn't lending ALL the cash doesn't mean they're not underwriting the note. Underwriters can insure subprime notes against default for a fee. As part of Chrysler-Fiat's arrangement with Chase, Ally, and others, a percentage of the incentives paid must go to these types of subprime note policies.

You can argue semantics if you like about the meaning of "subprime," but the bottom line is really simple:

1. Chrysler-Fiat's "subprime mobiles" aren't very good and can't be successful on their own merits
2. Chrysler-Fiat has to take advantage of the financially challenged to meet their sales goals.

It's pathetic.

Isn't this what Korea does as a nation? Isn't 0% for sub primes what almost put Mitsubishi out of business?

Great point about Mitsu

I'm sorry, but if a sub-prime borrower is able to get a cash discounted new car under a warranty for the same monthly payment as a used car how are they being taken advantage of?

Second, correlation does not mean causation. You think Chrysler makes crap cars so that they can be passed off to Subprime borrowers? That's ass backwards. They are making crap cars which must be discounted to be sold, thereby making them cheap enough to be considered by subprime borrowers who usually buy used.

Finally, the numbers from Experian are in percent terms. Not units. Just because 40% of Dodge Avenger sales go to subprime borrowers doesn't mean Avengers make up most of subprime auto sales. For all you know there are more subprime borrowers buying Escalades, just the percent of total Escalade sales is small. Not many Avengers are even on the road.

The other facts you mention in the last post I can't disagree with but this whole article/thread topic just makes you sound angry like some injustice has taken place, where in fact its making something of nothing. Odds are, 85-95% of all these subprime auto loans will get paid back in full (check the data, its true for subprime auto loans). So there is certainly a greater good being served via subprime auto lending (the same can't be said for residential).

Firstly, subprime borrowing is inherently bad. If consumers were forced to own up to their mistakes - such as being required to come up with a down payment before buying a car, or not being allowed to buy on credit until they've proven themselves to be trustworthy and reliable - the world would be a better place. One of the problems in the USA today is that people don't take responsibility for their own actions. That's what credit ratings are all about.

As you intimated, the subprime mortgage industry and cheap consumer credit cards contributed to the most recent recession. Subprime lending is a shortcut that keeps people from owning up to their mistakes, and it should not be encouraged.

Second, you may be correct when you say that Avenger sales - or Chrysler products in general - don't make up "most" of the industry's subprime sales. However, they make up a disproportionate amount, as the industry average is 20% subprime, and Chrysler-Fiat is rolling at nearly 24%...that's 25% above average.

What's more, the cars with the above-average subprime sales percentages are Chrysler's best selling car models. Half of all the cars Chrysler has sold in 2012 (100k total thru May) are the Avenger, the Caliber, and the 200. Those are also the models that run from 24% subprime (the 200) all the way up to 39% subprime (the Avenger).

While we may disagree about the impact, my thinking here is simple:

- Chrysler cars suck (comparatively speaking)
- Chrysler, rather than fixing their cars, figures out a way to "help" America's credit challenged by selling them a sucky car

If you feel that credit challenged people need someone looking out for them (and I'm of that opinion), than Chrysler's program is predatory.

Another point: 90-95% of subprime loans are paid back, but that's not a great number when you consider more than 99% of prime loans are paid back. Put yourself in the lender's shoes: If I loan money to person 'a', there's a 5-10% chance I'll lose. If I loan money to person 'b', there's less than a 1% chance I'll lose. That means subprime loans are 5-10 TIMES as risky. That doesn't make them good loans.

If a pool of loans yields 10% and 5% default, the lender still makes 5%. Plus, 95% of the borrowers got to drive a car to work and RE-ESTABLISH their credit history.

The only way to improve your credit rating is to improve your TRACK RECORD. Do you want people who are subprime to stay that way forever?

Subprime lenders often lend to people with student loan and home loan issues, but who are still likely to pay their auto loan.

Find something more productive to be angry about, you sound pretty intelligent.

Absolutely with respect to USED, though I think it mostly is because of their crumby resale value. I agree that the bad credit folk are 90% of the time offered Sebrings or Stratus or other crumby Chrysler products used as the only option for them to purchase allowing the dealer to sell them for retail (which they are certainly not worth) and make a killing on the customer while the price remains low enough to offset their ridiculous interest rates.

I Think It Sounds Like A Total Win/Win Situation!!!!

I hope it's not true, that would seriously shady and make me not even consider purchasing from them under any circumstance.

Thanks for the heads up on this underhanded practice by lenders. I do like the looks of the new FIATs, but they are notoriously badly engineered. Coupled with shady loans on these cars, it makes a recipe for disaster for unwary consumers.

Enabling people with poor credit to purchase a vehicle so they can get to work to make money in no way means that they're still going to be able to afford to keep up on the payments for that vehicle, as was proved by the subprime home lending fiasco. This is especially true if the vehicle is expensive to own as well as unreliable.

There is a reason that Chrysler is selling more cars. All kinds of people need cars and if they are putting cars in peoples hands that need them, then they are doing a service. Unfortunately, if the cars are junk; then they are doing a dis-service. If they are dealing with sub-prime borrowers then they should provide credit counseling.

All car manufacturers and dealerships are guilty of doing this. I am sick of hearing how one car is better than another. Why cant they show people instead of just saying it. It is like presidential campaigns. The nominees always tell you what they are going to do but the crap never gets done.

I do think that all car dealers do it - they have a relationship with the dealers not the buyers so any benefits are being reaped by the dealer. Consumers have to be awfully careful of any cars they buy since they are getting the wrong end of the stick every time.

Last time I checked, it's your own fault if you have bad credit and/or purchase a bad car. These companies are just trying to make money.

I completely agree. The last thing people with bad credit need is a cheap car that is made to break down which forces people to get into debt.

I have no idea if this is true or not. I'm not sure I really care. But if it's as bad as it sounds, I'm not a fan.

I am agree with you. The last thing people with bad credit need is a cheap car that is made to break down which forces people to get into debt.

Ugh. It's a recipe for a big time failure. People who are broke and desperate enough to apply for a loan they can't afford... surely can't afford to have their new cars fall apart on them. It's like adding gasoline to the fire.

Wow really? I hope this one is not true though but if it is, then the public should be informed about this. Everyone deserves fairness and good quality regardless of the credit score. Hope they take action for this.