By all accounts it's a great time to buy a new car. Manufacturers are willing to slash thousands off sticker prices and offer interest-free money.
But there's a catch. Those deals won't do you any good if you can't qualify. The reality is that many auto lenders are still stingy with money, so some dealers still have quiet showrooms.
"The biggest challenge we've got is the availability of credit," said Dale Early, owner of Deerbrook Forest Chrysler-Jeep in Kingwood, Texas.
Early said approvals have dropped down to about 50 percent, a fall from about 80 percent just a year ago.
"If you have (credit score of) 700 and above you don't have a problem getting a loan. We're seeing some great opportunities for people with excellent credit," he said. But in his experience anyone with a credit score of 650 or lower is having trouble getting approval.
In cash terms, a credit score of 720 to 850 could get you a car loan at about 6.7 percent, which means you'd pay about $768 a month on a 3-year $25,000 loan, according to Myfico.com, a Web site operated by Fair Isaac Inc., a Minneapolis-based provider of credit scoring.
By comparison a score of 620-659 qualifies you for a loan at 12 percent, which increases your payments on the same loan by $63 to $831.
The median credit score in the United States is just barely in that top financing bracket at 723.
The reason lenders remain cautious was revealed Wednesday in the American Bankers Association quarterly credit report.
Auto loan delinquencies reached record levels in the third quarter of 2008 as unemployment continued to climb. Delinquencies for indirect auto loans — those made through an auto dealer and which account of 90 percent of auto loans — rose to a record 3.25 percent. That's up from 3.07 percent in the second quarter.
But the outlook may be improving as the restrictions on credit may be easing.
The financing arm of General Motors Corp., GMAC Financial Services, has expanded its lending by including customers with a credit score of 621 or above, a significant expansion of credit compared to the 700 minimum score put in place two months ago.
Those tougher credit score requirements meant higher scores were needed for buyers to get the best rates, but they locked some people out of getting loans completely.
Last month the Treasury Department said that it would give $5 billion in federal aid to GMAC, prompting the company to announce a week ago, its relaxed lending requirements. With the cash, GM also launched a new round of zero-percent financing offers.
"I think that some of the bailout money initially given to lenders is finally starting to trickle down to the streets," said Lenny Sims, general manager at NADAquides.com, a company that focuses on auto pricing.
Another loosening of the purse strings occurred on Wednesday when a group of credit unions that partnered with General Motors and Chrysler to offer rebates and make low-cost loans to car buyers in 12 states said they would expand the program nationwide.
David Adams, president and chief executive of the Michigan Credit Union League and the national credit union group CUcorp, said the expansion of the "Invest in America" program is expected to give 90 million credit union members potential access to low-interest loans for GM and Chrysler vehicles.
If you can get credit, it's a car buyer's market, though.
Dustin and Katie Cummings, both 25, of Grinnell, Iowa, found themselves Tuesday afternoon at Karl Chevrolet in Ankeny, a pristine dealership on the north edge of Des Moines with acres of new cars, trucks and SUVS. An occasional customer drove through on this sunny but cold winter day. The Cummings were among those who got out for a closer look and who came inside to talk further.
Salesman Matt Moro said incentives are one reason he's starting to see more customers.
"I wouldn't say the floodgates opened, but we definitely saw increasing traffic," he said, adding that GM's new incentive package is a significant improvement over what Des Moines dealers had seen in recent months.
The Cummings did their homework before talking with salesman Dave Barlow. They were ready to buy.
Katie Cummings said she's had her eye on a Chevrolet Tahoe, a large four-wheel drive SUV, to replace their smaller Mercury Mariner. Katie had researched the Tahoe on the Internet and knew the features she wanted.
Dustin said his family is loyal to Chevrolet. His dad recently bought a vehicle at the same dealership, so they knew where to go, what they wanted and had an idea of price. Dustin is continuing a long family tradition of farming. Katie stays at home with their 5-month-old daughter.
They were pleasantly surprised to find GM had just announced new incentives and the Tahoe was included.
The new program is particularly good for customers who own GM vehicles already, because it offers as much as $3,000 in cash to anyone who owns a GM vehicle 1999 or newer.
The Cummings took advantage of the $1,000 cash back GM is offering in addition they'll get another $3,000 in brand loyalty cash because Dustin owns a Chevrolet Silverado pickup.
The sticker price on the white Tahoe loaded with extras was $59,625, although they were negotiating on the final price.
Sales trends in December reveal why automakers are pushing low-interest loans and steep discounts.
About 40 percent of the cars sold in December were 2008 models. That compares with December 2007, when just 19 percent of the cars sold were the previous model year, said auto consumer publisher Edmunds.com analyst Jesse Toprak.
"That means a lot of unsold old model years remain and that translates into big discounts," he said.
With that much inventory to move, incentives are likely to last at least through February and maybe March.
But it's also a message to potential buyers that the window of opportunity will likely close sometime this spring. Most manufacturers have announced plans to cut production to get inventory more in line with demand. When that happens, incentives will fall away and deals we're seeing now likely will be harder to find.