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Strategic Options for Growth for Auto Financing Sources

September 2007, F&I and Showroom - Feature

by Marguerite Watanabe - Also by this author

In the world of auto financing, we can always say there is a challenge being faced. There was the subprime fallout of the early 1990s, the leasing problems that plagued the industry later that decade and into early the next decade, taking out a few players. More recently, the Detroit captives have been under great duress, having the dual responsibility of being the main financial contributor to their owners’ bottom lines while having to look good when held up for sale. Then there’s the subprime mortgage problems, which are looming over the nonprime auto financing industry like a dark cloud.

Despite these challenges, it is easy to point to the positive impact automotive financing has had on the automotive industry. Consumers can buy a car or truck today more easily and faster than ever. Special lease payments and zero-percent financing programs have helped bolster sales for manufacturers and build showroom traffic for dealers. The availability of financing to credit-challenged buyers has also provided a better opportunity for dealers to close the deal.

What’s clear is that auto financing sources and products are keys to building the strength of the auto industry. While the competition is quite intense and pressure on margins continues to mount, auto financing sources remain persistent as they continue to find ways to grow their businesses profitably for their dealer base and for their shareholders. The more solid the auto financing bank or company is, the more confident dealers can be in placing their trust in these industry partners.

There are a number of strategy options financing sources can employ to grow business: place, products, pricing and promotions. We’ll also throw in procurement and partnership. Let’s look at each growth strategy in more detail.

Place: Lenders Look to Expand Through Deeper Dealer Penetration

“Place”can mean geographic or market expansion. Auto financing sources can choose to broaden their reach by offering financing in new cities, metropolitan areas, states or even countries. Auto financing companies will typically expand into a new territory as they grow confident in their ability to meet the needs of their dealers and owners.

Auto financing has even gone global. Automotive captives and several U.S. auto financing companies are doing business in Canada. Names include AmeriCredit and Wells Fargo Auto Finance. A number of the automotive captives have international operations with offices in North and South America, Europe and Asia, supporting their manufacturers and dealers in these markets. We must keep in mind that it goes both ways, as several foreign financing companies have taken an interest in the U.S. auto financing market — the Bank of Scotland owns Citizens Bank of Rhode Island and HSBC’s global base is in London. Banco Santander of Spain recently bought Drive Financial. And Aozora Bank of Japan is part of the investment firm Cerberus, which currently owns 51 percent of GMAC Financial Services and now owns 81 percent of Chrysler Financial.

Place can also mean deeper sales penetration among dealers, the “place” where the retail contracts or leases are originated. Dealer penetration includes increasing volume from current and active dealers, as well as those with signed but dormant dealer agreements. Of course, signing on a completely new set of dealers is always a growth option. More recently, independent dealers have become a target of auto financing sources. While independent dealers are almost always looking for additional financing sources, auto financing sources are looking for the best candidates among the 44,000-plus independent dealers with which to partner.

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