Credit unions help members buy cars at reduced rates

Buying a new car in Texas in August can be a searing experience. Automobiles become ovens on wheels, as the hot sun beats down on the dealer parking lots. In August, Norma Davidson, a Denton, Texas, music professor and credit union member, found a cooler way to buy a new Lincoln Town Car. She went to a car-buying service, NCAR, Inc., that is associated with the Texas Credit Union League. NCAR negotiates the price of cars.

Not only did Mrs. Davidson avoid a hot parking lot, but she saved about $2,000 on a car that NCAR bought at the fleet rate, which is reserved for large-volume purchasers.

Credit unions around the country may soon repeat Davidson's experience, potentially saving members anywhere from 13 to 20 percent. The average car markup -- the difference between the price the dealer pays the manufacturer, and the sticker price -- is between 13 and 14 percent.

Credit union leagues in Virginia and Pennsylvania started programs similar to the Texas league's to enable their members to buy cars at prices only 2 percent above the manufacturers' invoice price.

If these programs succeed, the Credit Union National Association, the umbrella organization for the state credit union leagues, says it hopes to expand them into a national program in 1987.

The credit union programs are a direct response to the low-cost financing Ford Motor Company, General Motors, and Chrysler offered their customers recently, culminating with 2.2 to 2.9 percent financing in August and September.

These low rates were extremely successful: Ford had 57 days worth of cars in stock on Aug. 1 and only 34 at the end of September.

Credit unions have financed about 16 percent of all auto and light truck loans. But, as customers flocked to auto showrooms to take advantage of the low-cost financing, many left their credit unions behind.

Credit unions watched their share of the car market drop by 11.5 percent over the past 17 months. They are not alone: Commercial banks' share of market fell 12.2 percent and a bankers' trade organization recently wrote the attorney general in 13 states about antitrust issues.

In addition, some economists believe the cut-rate financing will have an adverse impact on the economy over the next year since the loans are short term and result in large monthly payments.

For example, to buy an American Motors car with zero percent financing, the monthly payment is $500, if the car cost $15,000 and a 20-percent down payment is made.

Edward Yardeni, an economist with Prudential-Bache Securities, figures that 2 million Americans bought cars at the low rates and are now paying about $100 more per month.

Until these loans are paid off, he reasons, ``auto incentives are likely to depress consumer spending.''

The low interest financings offered by the Big Three ended last week when Detroit introduced its 1987 automobiles. Almost eveyone, however, expects they will be back. ``The key is how fast the inventories build up,'' says Bob Von der Ohe, an expert on credit unions and an economics professor at Rockford College, in Rockford, Ill.

He adds, ``The auto companies probably can't justify another program with 2.9 percent financing, but they can charge less than a credit union because their borrowing costs are lower.''

For the next few months, the credit unions are refining their experiment. In Texas, the league, with only 250 of the state's 1,135 credit unions signed up, is now ordering 200 cars a month. The goal, says spokesman Bill Hamilton, is to buy 600 cars a month.

``Almost all the credit unions signed up are sending out stuffers in their third-quarter statements,'' says Mr. Hamilton. ``Once these get out, we expect a lot of activity.''

The Texas league was not sure the idea would work in the first place, and questioned why dealers would sign up. But with business being depressed in the Lone Star state, dealers were hungry for sales. Nearly 400 domestic and foreign car dealers were eager to offer their fleet rates to the Texas league through the car-buying service, because they needed to unload.

In the case of imports, which are in greater demand, the cars sell for a few hundred dollars more than the manufacturer's invoice price. Domestically produced cars and trucks, on the other hand, sometimes sell for less than the invoice price because the dealer is anxious to reduce inventory expense. Dealers can squeeze their margins because they have no advertising expenses related to the sale.

To ensure that consumers get what they paid for, Pennsylvania is asking them to send a copy of the invoice or sticker to a central clearinghouse set up by the credit union.

``Most dealers are honest and aboveboard, but a few might like to stretch their margins a little bit,'' says Doris Ellis, of the Pennsylvania Credit Union League.

As for the car companies, they have no complaints about the program. ``If it's selling cars, that's fine with us,'' says William Winters, a GM spokesman.