Can Mitsubishi Dominate the Subprime Market?

2010 Mitsubishi Galant

Well, according to a recent report from Experian Automotive, they just might…and not in a good way. Mitsubishi holds the dubious honour of having customers with the lowest credit scores, out of all of the automakers.

More specifically, Mitsubishi’s customers come in with an average score of 694. That may not seem bad, but by comparison, it shares the bottom of the totem pole with the recently departed Suzuki (704). Perhaps they can capture all 23 of their average monthly sales…that should raise their own total to 223.

Not one to feel left out, Dodge (718), Kia (721), and Scion (723) are down there with them. It isn’t surprising that they’re attracting these types of customers, as most of them have lineups that are designed to attract younger customers. They generally have lower credit scores, due to a combination of limited credit history and poor financial decision making. Perhaps Mitsubishi is the end of the road for some.

Nothing can kill a car deal faster than a customer with a low credit score. It’s ironic, because it’s always been my experience that customers with “challenged” credit scores tend to be the easiest to work with. Most will be upfront about it right away, but some are genuinely surprised. Not just for a lack of knowing, but for a lack of doing some research on what their score is beforehand. By the way, if you’re about to purchase a vehicle, it helps to know what your credit score is.

It can be just as frustrating for the dealership as it is for the customer, especially the salesperson. Hours spent getting to know the customer, finding out their wants and needs, then finding and landing on the right vehicle for them…all down the tube. Especially if one works in the Internet department, as there are generally several emails and playing phone tag thrown into the mix. That being said, this generally applies to dealerships that don’t have subprime lenders.

But some do, and for some, it may be the only way to get into a new(er) car.

Here’s how it typically breaks down:

In order to get the loan “bought” by one of their subprime lenders, the F&I Manager will have to “sell” the loan as best as possible. Since all credit companies are taking a risk with loaning out money, the risk multiplies with those that have a history of bad credit…or even worse, someone with no credit. They will need additional information from the customer before submitting the loan request, which generally includes:

A copy of a paycheck stub (up to a month or so)

Six references (this can be tough to get)

Additional cash down

They have to make the loan request/customer as attractive as possible. As you can imagine, the customer isn’t going to qualify for any advertised interest rate, which generally comes from the automaker’s own finance company (or in Subaru’s case, their preferred lender, which is JPMorganChase). Once the loan has been approved, the interest rate could be as low as 14.9%, or as high as 24% in most states. Buyer beware though…in some states like Illinois, there is no formal credit regulations. Whenever I was in the Navy, we had a class that warned us specifically to check the auto finance contract before we purchased a vehicle. I distinctly remember one individual that had purchased a Camaro Z28 with an 300% interest rate. No, that’s not a typo. Thankfully, the Navy stepped in and got the issue resolved.

Lesson learned…always read the contract, and check your credit history before you make any major purchase.

So, with that being said…what is the future for Mitsubishi? Where do they go from here?

2013 Mitsubishi Mirage

In my professional opinion, they would do well to either purchase a subprime lender to join their own financial company, or at least help their own franchised dealerships attract other subprime lenders. Since they’re going to drastically revamp their lineup to only having small vehicles and electric/hybrids, they will naturally attract younger buyers (as is the goal of all automakers). Since most of this demographic have lower credit scores, it’ll be easier for Mitsubishi to sell cars.

There is a method to this madness though, as recent reports have subprime lending and leasing on the rise. More specifically, all non-prime loans rose 13.9 percent, and for higher-risk customers, loans rose from 21.9 to 24.8 in the previous quarter of this year. Also, the average amount financed also rose, but only by $90, to $25,963. Finally, although automakers are reluctant to do so, some dealerships are starting to offer 60, 72, and even 84 month loans (currently the fastest growing segment in the auto finance industry) again. Those that are looking for that low, low down payment may be able to stretch the term by another 12 months or so in order to get there. The other alternative? More money down…something that most customers simply don’t have.

 

Source: Motor Trend and Autoblog

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