Cut-Rate Car Loans Boost Business at a Maryland Bank

Doing its part to stimulate the economy, a community bank in Maryland has trimmed loan rates on American cars by a full percentage point - and seen a sixfold increase in business.

The Bank of Glen Burnie has cut rates for three-year loans to 7.75% from 8.75% and five-year loans to 8.5% from 9.5%.

President Bush's recent efforts to jawbone banks into lowering interest rates spurred the move.

Drop of 4%

Auto loans, like other forms of consumer credit except credit card loans, have been declining amid the slow economy. Outstanding auto loans in the United States totaled $272.8 billion on Sept. 30, down 4% from year-end 1990 and 6% from yearend 1989.

Commercial banks' auto loans on Sept. 30 were $119.9 billion, giving them a 44% market share. The banks' loans are down 5% from $126.3 billion at the end of both 1990 and 1989.

"We're trying to prod the economy a little," said Earl Walter, secretary to the board of directors of the $165 million-asset bank in surburban Baltimore. "We feel we can do that and get new business and new customers, too."

Other banks may want to take notice: So far, the strategy seems to be working.

Loan applications have risen sixfold since Nov. 1, when the bank began advertising the rates on new American cars and trucks in local newspapers. More than 100 applications rolled in over two weeks, "and that's a lot for a bank our size," Mr. Walter said.

The number of loans booked is also up five to six times, Mr. Walter said, declining to specify figures.

Auto Loans with Appeal

The two-month promotion has helped Bank of Glen Burnie increase market share. "Autos are not selling, but for those that are, we're getting ourselves a big share of the business," Mr. Walter said.

The loans aren't yielding the profit margins of four or five points that the bank ordinarily seeks on consumer credits. But, Mr. Walter said, "We're making a couple of points, and we're keeping the dollars out there in the community." That should pay off in the long run by cementing customer relationships.

Mr. Walter maintained that the low rates aren't risky because "people who look for very low rates are your more solid people."

National Pride

By favoring American vehicles, the promotion also tugs on patriotic heartstrings.

"I'm for anything that will stimulate American jobs, and I think this does," said Rep. Helen Delich Bentley, D-Md., whose district includes Glen Burnie. "That in turn will benefit the banks, as well as America."

One new customer, Thomas Pezza, is a former Marine who just took a pay cut at his job as a firefighter and paramedic with the Anne Arundel County Fire Department. He took out an $8,800, four-year loan at 8% for a Ford F150 truck.

Mr. Pezza was attracted to the promotion partly because it was aimed at boosting U.S. manufacturers.

"I'm trying to keep Americans working," he said. "I'm trying to do my part."

After serving five years in the Marines, Mr. Pezza said, "I just feel that to be driving a foreign object is contrary to what I believe in."

PHOTO : Automobile Credit No Longer Growing Loans outstanding at yearend, In billions of dollars

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