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Lenders Talk Shop

At the magazine’s annual conference, finance executives reflected on the trends that defined 2011 and reaffirmed their commitment to the indirect lending channel in the year ahead.

February 2012, F&I and Showroom - Feature

by Gregory Arroyo - Also by this author

Last year was a study in contrasts for the auto finance industry. The unemployment picture failed to improve, slowing the drive toward normalcy, but few would disagree that gains were made. At September’s F&I Conference, executives from five of the top auto finance sources met for a panel discussion, and the tone of their comments reflected that duality. The executives believe business will continue to grow in 2012, but they also hinted at making concessions if the economic picture doesn’t improve.

The executives covered a host of issues during their hour-long discussion, from used-car values to today’s subprime customer. Moderated by Connections Insights’ Marguerite Watanabe, the panel included Toyota Financial Service’s Pete Carey, GM Financial’s Craig Hewitt, TD Auto Finance’s Kelly Mankin, Bank of America’s Walter Masnyj, and Wells Fargo Dealer Services’ Adam Pope. The following is an abridged version of their exchange.

Watanabe: How are used-car values impacting your business these days?

Pope: Used-car values have benefited all lenders over the last couple of years due to the shortages in supply. I think we’re reaching a point where supply is finally catching up to the demand, which is why our outlook for used-car values over the next 12 months is flat.

Mankin: We see things similarly. However, late-model cars are getting to a point where they are starting to bump up against new cars in terms of payments and values and things like that. So there has to be a shift, because it can’t go much further or you’ll see people transfer over to the new-car side.

Watanabe: The credit crisis brought a lot of change to our business. Some banks chose to exit the business, while others pulled back. We also saw the emergence of the “hybrid” captive. What do you see happening over the next couple of years?

Mankin: You always see cyclicality in a recession. That was the case in 2007 and 2008, when lots of folks folded up the tent and left. Fundamental to that, too, was the inability to get capital. Now we’re on the other side of that mess. Funding is available and there is a lot of liquidity out in the marketplace.

In fact, TD bought [Chrysler Financial], in part, because they had an incredible amount of excess assets that they needed to employ. You have to keep in mind that this asset class has performed and continues perform better than any other asset class during this period. Combined with more opportunity through the increased SAAR and used-car sales, those economic factors are going to drive more lenders into the industry.

Carey: Kelly is right about the asset class being attractive. I think what’s really fueling that is the mortgage vertical. Banks traditionally use that to invest their money and they’re struggling with that. Until that dynamic changes, I think we’re going to see more players coming back to the market. For instance, we’re starting to see more competition with regard to leasing, which is driven by the fact that the consumer is looking for that low payment option. So, I think that’s going to continue.

Watanabe: How do you make sure some of the recent changes in regulatory activity get conveyed to dealers?

Pope: First, it’s focusing on your operational risk program that you have in place, making sure all of your team members are properly trained. With regard to the Consumer Financial Protection Bureau, well, there’s still a lot we don’t know. So, the only thing we can do now is focus on all the rules we do know about and make sure we’re compliant with all of them. That will allow us to gear up for anything that comes down the pike from the CFPB.

Carey: The advent of some of the e-contracting initiatives that are being rolled out across the industry is certainly going to help on both sides of the fence. Dealers are going to be forced into a level of compliance that maybe they don’t have today. I think it’s going to mitigate a lot of the risk, and it certainly helps our internal controls.

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