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Industry Summit: Finance Execs Discuss Market Trends

The auto finance marketplace is heating up, but executives from six top finance sources said there’s more at play than simply a race for market share.

November 2011, F&I and Showroom - Feature

by Gregory Arroyo - Also by this author

Capital One Auto Finance’s Kevin Borgmann was one of three keynote speakers to address attendees at Industry Summit 2011.
Capital One Auto Finance’s Kevin Borgmann was one of three keynote speakers to address attendees at Industry Summit 2011.

Heading into the magazine’s September conference, there were plenty of signs pointing to a return to health for the auto finance industry. But one keynote speaker and several auto finance reps wondered if the market has overshot its return to normalcy.

The auto finance business is a long way from 2008, when the industry suffered through $62 billion in losses. Barring any unforeseen circumstances, finance sources stand to make $23 billion by year end. But there is evidence that some are beginning to cycle back to those fast-paced, pre-recessionary times.

“Don’t assume this time will be different,” warned Kevin Borgmann, the president of Capital One Auto Finance, noting the return of the 72-month term.

Borgmann, who opened the show on Monday, Sept. 26, was one of three keynote speakers to address attendees at Industry Summit 2011. Also there to talk about auto finance were executives from Toyota Financial Services, GM Financial, TD Auto Finance, Bank of America and Wells Fargo Dealer Services.

Experian Automotive’s John Gray warned of the potential dangers of finance sources once again getting caught up in a race for market share.
Experian Automotive’s John Gray warned of the potential dangers of finance sources once again getting caught up in a race for market share.

John Gray, senior vice president of Experian Automotive, took the stage to open the first full day of the conference on Sept. 27. He said that one indicator of the auto finance industry’s recovering health was the 22.4 percent year-over-year increase in below-prime originations. He also noted that banks are becoming a force in the high-risk credit tiers, increasing their share of that market for new vehicles by 65 percent on a year-over-year basis.

“The banks [have been] dominating subprime lending for the last 10 months,” he said, adding that banks currently own 40.52 percent of the below-prime, new-vehicle financing segment. Finance companies continue to lead the way in below-prime, used-vehicle financing, but banks are a close second at 26.66 percent share.

Gray said that the Top 20 lenders in new-vehicle financing own more than 77 percent of the market, with Ally, Honda Financial Services, Ford Motor Credit, Toyota Financial Services and Chase Auto Finance at the front of the pack. On the used side, Wells, Ally, Chase, Capital One and Toyota are leading the way. Gray added, however, that his data points to an aggressive battle for market share at the lower end of the market, a trend Borgmann also touched on during his address.

Borgmann listed three deals, all of which involved car buyers with FICO scores of below 550, as evidence of the intense market share battle his company is tracking. In one deal, a finance source funded a customer with a 441 FICO score at 7.15 percent despite having two bankruptcies, a repo and 68 inquiries in a two-month span. The vehicle, a 5-year-old, 80,000-mile GMC Yukon with a book value of $17,450, was sold for $23,000. Back-end profit on the deal was $4,989.

The other two appeared no less egregious. Borgmann asked the audience to guess when they had been booked. Shouts of “2007!” and “Early 2008!” rang out from the crowd. The answer? 2011.

“The market is getting more aggressive,” said Borgmann. “My hope is people will remember that we’re in a cyclical business.”

Comment

  1. 1. John Lim [ November 02, 2011 @ 07:43AM ]

    I seriously have to question the Experian Automotive statistics as I don't believe that banks are buying deeper.

  2. 2. Bob Thomas [ November 03, 2011 @ 07:01AM ]

    The question is are they really buying deeper or is it that a 750 beacon score 3 years ago is now a 650 beacon score? I have seen several customers scores drop over the past couple of years due to no fault of their own.

  3. 3. Roberto Winzer [ January 04, 2012 @ 12:14PM ]

    It has alot to do with where the customer lives and what bureau the dealer pulls from. The moral to the story is, The big banks are trying to take 90% of the market. Always remember, America's Financial System is designed to keep printing money..... Which means, The big banks are looking 10 years down the road instead of 2.

 

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