Captives lead auto finance recovery

Jim Henry
Automotive News -- November 30, 2011 - 8:45 am ET
With retail sales of new cars and light trucks rebounding in the U.S. market, auto financing is on the upswing, too.

Photo credit: BLOOMBERG

Retail sales are in recovery mode and so is auto financing.

The comeback is much stronger among captive finance companies -- especially for subprime customers -- compared with banks and credit unions, according to Equifax. Since the captives fell harder in the 2008-09 recession and overall credit freeze, they had more ground to make up on the road back to normalcy.

Since the captives fell harder in the 2008-09 recession and overall credit freeze, they had more ground to make up on the road back to normalcy.

"When we look at what's going on in automotive, you see a tremendous amount of growth coming from a specific area," said Michael Koukounas, senior vice president of special client services for Equifax. "It's coming from the captives."

Comparing July 2011 with July 2009, Equifax said auto originations for the captives increased 47 percent, to almost 855,000 contracts, including new and used vehicles. In the same comparison, banks and credit unions dropped 1.4 percent, to 820,000, Equifax said.

"Banks are being very cautious about lending -- and they have significant regulatory oversight, telling them to be cautious," Koukounas said earlier this month.

So the recent momentum is in favor of the captives.

For example, Ford Credit reported last month it originated 27.5 percent more U.S. loans and lease contracts in the third quarter than it did the year before. Ally Financial Inc., the preferred lender for GM and Chrysler Group, said it originated $10 billion worth of U.S. auto loans and leases in the third quarter, up about 17 percent.

For the same period, Chase Auto Finance, one of the biggest banks in auto lending, reported its auto originations were down 3.3 percent to $5.9 billion.

To put the recent numbers in context, Ford Credit originations fell about 43 percent for all of 2009 vs. 2008.

Koukounas said the captive finance companies in particular have been quicker to get back into the subprime segment. However, Equifax doesn't break out company-by-company results, except for clients.

Auto loans to subprime borrowers now account for 38.5 percent of all auto loan originations for the captives, and 17.6 percent for banks and credit unions, according to Equifax. The credit bureau defines subprime borrowers as those with Equifax credit scores below 640.

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