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August 2010, F&I and Showroom - Feature

by Gregory Arroyo - Also by this author

Capital One Auto Finance’s story of survival over the last five years isn’t unlike other sources in this credit segment. And like other companies, the firm that once symbolized the full-spectrum lending movement appears poised to grow again. We sat down with Sanjiv Yajnik, the individual selected to steer the company’s auto finance business through the economic downturn, to find out if the company is indeed back in the driver’s seat.

F&I: Sanjiv, you took over Capital One’s auto finance unit in December 2007, right around the time the country was admitting that it was in a recession. What was the company’s response to the credit crisis and the fallout that ensued?

Yajnik: We essentially transformed our business by aggressively retrenching and repositioning ourselves at the outset of 2008. We scaled back our prime business by focusing on a much smaller network of dealers with whom we had deeper relationships, dealers who had better credit and profitability performance.

Our focus was on originating loans with better credit characteristics by tightening underwriting and steering our originations upstream within both the subprime and prime segments of the market. Basically, we stopped originating loans to the riskiest parts of the subprime segment.

Now, it was around that time that we kicked off our Diamond Dealer program, which we have refined since then. Essentially, it focuses on deepening relationships with key dealers, providing them with exceptional service and access to sophisticated direct marketing and pre-approved credit offers.

F&I: So, what results have you seen from the adjustments you made?

Yajnik: We are seeing solid indications of better credit performance from those originations across all of our segments. And as we look at our current originations, we are seeing signs that they are holding up against any further deterioration of the economy — even beyond what we presently expect.

Our total loans now stand at $17.2 billion, which is down from about $21 billion at the end of 2008. The decline is a result of our choice to cut back on the amount of new loans we booked this year.

So, in the first quarter we added about $1.3 billion in new loans. In the most recent quarter we booked another $1.7 billion. We are looking to slowly and methodically grow our business going forward, as our goal is to continue leveraging our dealer partnerships and originate loans in areas where we have significant expertise and experience.

Again, our current origination volumes are strong and we continue to hold or gain market share in what is once again a competitive auto market.

F&I: A competitive market typically means more sources for dealers, but I’m not sure dealers are seeing that these days.

Yajnik: The competitive intensity in the industry is returning. We are seeing expanded loan-to-value ratios, but we don’t see things going back to where they were. See, a lot of the loans originated in 2006 and 2007 were not profitable, and that was unhealthy for the whole industry.

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