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Car rental firms fine a way for rejected customers

ABU DHABI- Car rental companies are finding new ways to cash in on prospective buyers whose vehicle loan applications have been rejected by banks.Diamondlease and Fast Rent A Car UAE are targeting these customers with lease-to-buy programmes, circumventing banks that have cut back on loans for low to middle-income earners due to tightened lending standards caused by the credit crisis.

“[Of] those customers which the bank has eliminated, we want to filter the good customers out,” said Hashif Basheer, the area manager at Diamondlease in Abu Dhabi.Buying a car has become increasingly difficult in recent months following the economic downturn, with banks raising down payment minimums, minimum salary requirements and interest rates. The growing number of rejected customers is cutting into sales at car dealers, but some rental companies see this as an opportunity.

Under Diamondlease’s newly launched programme customers could sign up for one, two or three-year leases for new vehicles, and had the option to buy the car for a pre-agreed amount after that term expired, Mr Basheer said.Customers would have to apply and wait to be approved for the programme, he said, but some of those who would be rejected by the banks would be accepted for a lease-to-own deal, he added.

Fast Rent A Car will reveal a similar plan in a week’s time. Under its terms, customers would be able to lease a used car for 12 months and own the vehicle at the end of that term, said Rania Kakos-Yazbeck, the marketing manager at the -company.

“Due to the meltdown, banks are not offering auto finances any more,” she said. “A lot of people want their own cars, but can’t pay and can’t get auto financing.”

As people become increasingly concerned about their jobs, the short-term commitment of a rental or lease-to-own agreement may be preferable, Ms Kakos-Yazbeck said.

Roger Tannoury, the finance and insurance manager at Abu Dhabi Motors, a BMW and Mini dealership, said more of his firm’s customers were opting to lease this year.

Last year, less than 10 per cent of business came in through leasing programmes, he said, but this year that figure was up to 25 per cent.

“When you are leasing you are not having any liability,” he said. “You can just bring the car back. Nobody would like to have long-term -liability.”

For those wanting to buy a car, only about half were being approved for loans under the banks’ tightened requirements, Mr Tannoury said. Historically, about 80 per cent to 90 per cent of applicants were approved.

“Too many banks stopped their car loans,” he said.

Some car dealerships have been devising ways around the banks’ tightening standards, assisting with down payments and engineering financing deals with reluctant banks in order to restart sales.

Mike Devereux, the president of General Motors Middle East, said his company had joined a local bank to negotiate lower interest rates and faster approvals for customers. GM also offered Dh10,000 (US$2,720) as part of the customers’ down payments, he said.

“At the height of it, we were seeing rejection rates of up to 30 per cent, 35 per cent even, when historically we would have seen rejection rates of about 5 per cent,” he said. “I’m sure that has been halved.”

As dealers scramble to get customers out the door with a car and a loan, Phil Horton, the managing director of BMW Middle East, said there may be a glimmer of hope that lending standards would ease in the near future.

“In the UAE, some of the smaller banks who probably weren’t active previously, or as active in the auto industry, are seeing an opportunity in the market and coming in, and are prepared to give credit,” he said.Sean Drury, the managing director of HSBC Middle East Finance, the bank’s vehicle loan division, said the bank was continuing to require a minimum monthly salary of Dh20,000, up from Dh10,000, and was being more cautious about making car loans.

If the market changed, the bank may adjust accordingly, he said. “This is important for responsible lending. We are giving out loans to those who can repay them in these difficult times.”

And there is evidence that people are having a harder time making payments.
According to a report last month, more than 3,000 cars were abandoned last year to escape loans, which is more than double the number of 2007.