OutstandingAuto Note Balances Top 900B

ATLANTA — With the subprime slice at levels “essential for a healthy economy,” the latest Equifax National Consumer Credit Trends Report indicated the total balance of auto loans midway through 2014 soared to a record high.

Sparked by a growth rate of more than 10 percent, Equifax said on Thursday the total balance of auto loans in finance company portfolios now stands at $902.2 billion.

Subprime Shoppers Opt for Kia

CarFinance.com released data on the Top 10 new and used vehicle choices for its below-prime car buyers for 2013.

Based on CarFinance.com's full year 2013 financing data, the list of most purchased vehicles diverges completely from the overall Top 10 selling vehicles in the U.S. Kia, a brand known for affordable, fuel efficient vehicles, dominates the below-prime new vehicle list.
subprime buyers

Subprime Shoppers Opt for Kia

CarFinance.com released data on the Top 10 new and used vehicle choices for its below-prime car buyers for 2013.

Based on CarFinance.com's full year 2013 financing data, the list of most purchased vehicles diverges completely from the overall Top 10 selling vehicles in the U.S. Kia, a brand known for affordable, fuel efficient vehicles, dominates the below-prime new vehicle list.

Subprime tarnish fades, finally

Jim Henry is a special correspondent for Automotive News

Dealers have complained for a couple of years now about how long it's taking for subprime auto lending to bounce back.

Sure, the U.S. economy isn't growing as fast as we'd all like. But really, what's taking so long?

How about tarnish by association?

Part of the problem is that ever since the subprime-mortgage collapse, some investors can't bring themselves to buy anything with the word "subprime" in it, said John Di Paolo, principal of structured finance research at Prudential Investments. Di Paolo spoke last week at a conference sponsored by Standard & Poor's Ratings Services.

"Some investors, I don't think, will ever come back to subprime," he said. That's despite the fact that subprime auto loans performed pretty well through the recession and performed a much better than mortgages.

"People don't differentiate," he said.

While some investors have been turned off forever, the good news for dealerships is that many investors are now pouring money into subprime lenders, which the lenders are using to make new loans and grow again. Subprime accounted for 41.5 percent of U.S. loan and lease originations in the fourth quarter last year, up from 38.4 percent the year before, Experian Automotive says.

All indications are that the first quarter this year followed the same pattern, with an increase in subprime share.

Finally, subprime loans are starting to catch up.

You can reach Jim Henry at autonews@crain.com.

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Financing vehicles 'that others won't touch' pays off for subprime lender Westlake

Jim Henry
Automotive News -- January 18, 2012 - 10:40 am ET
UPDATED: 1/18/12 3:00 p.m. ET Dietrich: "At the right LTV (loan-to-value) and the right structure, you can lend to customers with challenges."

Editor's note: An earlier version of this story gave an incorrect former title for Kyle Dietrich, assistant vice president of sales and marketing for Westlake Financial Services. He is a former vice president for WFS Financial Services.

Subprime auto loans are on the upswing and so is Westlake Financial Services, a subprime auto lender owned by Hankey Group in Los Angeles.

Westlake got its start in 1978 as the buy-here, pay-here division of Hankey Automotive Group. Today Westlake buys contracts from more than 13,000 new- and used-car dealerships in 49 states, says Kyle Dietrich, assistant vice president of sales and marketing.

Dietrich, who joined Westlake in 2009, says the lender grew most notably by sticking to what it does best -- servicing credit-challenged customers.

He spoke with Special Correspondent Jim Henry last week.

Your Web site notes that business grew 30 percent last year. How did you do it?

Actually, it was 32.19 percent growth. It was significant growth.

What did you do differently?

I was a vice president at WFS Financial and I was a vice president at Triad. I've seen rapid growth and I've seen rapid declines. In the haze of 2005, 2006, 2007, it was hand-to-hand combat for the banks for every deal. I saw rates drop and deals getting done that probably shouldn't have got done. Everyone was fighting for the same customer.

Meanwhile, Westlake stayed very consistent. At the right LTV (loan-to-value) and the right structure, you can lend to customers with challenges.

What happened to everybody else?

My old company shut down. [Triad Financial Holdings LLC was acquired by Santander Consumer USA in October 2009.] WFS Financial ran up the credit-risk scale. Everyone else basically ran from the segment, but Westlake hung in there. ... They were unwavering through all that.

Was demand for subprime still there, even though the supply of credit wasn't?

As the credit crisis hit, dealers who had been doing 300 cars a month all of a sudden were doing 180 cars a month. The subprime subset became the fastest growing subset.

I've heard lenders warn each other about a stampede in subprime that will lead to lower pricing. Dealers say, "What stampede?"

We have not aggressively changed pricing. We are a little more aggressive for franchised [dealers] because of how well they perform.

We charge high rates to consumers, but we will finance consumers, we will finance vehicles that others won't touch -- that other lenders aren't comfortable financing.

Where does the growth come from?

We now have about 285 sales staff. That's about 80 people -- closer to 100 salespeople -- which we added in 2011. We are north of 13,000 dealers. Not too long ago, it was about 9,000 dealers.

How many franchised, new-car dealers as opposed to independent, used-car dealers?

We are about 30 percent franchised and about 70 percent independent. There has been a very dramatic increase in franchised. A few years ago, it was about 15 percent franchised.

The franchised segment has been doing well. Car dealers are selling more used cars. Business overall basically has been flat, but used cars have grown.

Are you doing more "nonprime," or "near-prime"?

We consider ourselves to be a full-spectrum lender. We can handle from a zero FICO score to 850. Our rate and our fees are not going to be as competitive for those near-prime customers as Capital One or Wells Fargo. But we'll take vehicles those guys won't touch.

What's your average FICO score?

Our FICO average is 565. We are a true subprime lender. Other entities may say "near-prime" or "nonprime" and avoid the term, but we make no bones about it. Our goal is to provide a way to go for a lot of customers.

How much volume do you do?

We are on a pace for about 10,000 loans a month right now. That's for the fourth quarter and through the first quarter, I would say. In 2005 to 2006, it was around 3,000.

We're not an overnight sensation. We're growing through new markets, we're growing by adding to our dealer base, we're growing by adding to our sales force. But basically we're sticking to the same thing.

You can reach Jim Henry at autonews@crain.com. Readers are solely responsible for the content of the comments they post here. Comments are subject to the site's terms and conditions of use and do not necessarily reflect the opinion or approval of Automotive News. Readers whose comments violate the terms of use may have their comments removed or all of their content blocked from viewing by other users without notification.

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Subprime rivalry bodes well for dealers

Jim Henry
Automotive News -- January 18, 2012 - 12:01 am ET
Experian Automotive's Zabritski: "We're approaching where we were in the 2008 prerecession time period."

Photo credit: EXPERIAN AUTOMOTIVE

Subprime auto lending should continue to grow in 2012. But the big percentage gains that several major subprime lenders saw in 2011 aren't likely to be repeated, and that suggests competition will heat up in the segment.

It could be good news for dealers if lenders are competing harder for their business. Dealers have fretted as the comeback in subprime has lagged the comeback in auto sales overall.

"We're approaching where we were in the 2008 prerecession time period," said Melinda Zabritski, director of automotive credit for Experian Automotive, in an interview this week. "We are certainly seeing expansion, but we're not repeating back to where it was."

In the third quarter of 2011, the last period for which detailed statistics are available, subprime auto loans made up 39.9 percent of originations, according to Experian Automotive. That was about 3.2 percentage points higher than a year earlier and just about even with the third quarter of 2008, when subprime was at 40.2 percent.

Subprime accounted for 43.4 percent of originations in the third quarter of 2007. That fell to only 34 percent in the third quarter of 2009, Experian Automotive says.

Rebounding from those lows has helped drive big percentage increases in subprime.

Used-car originations almost doubled for Ally Financial in the United States in the third quarter to $2.3 billion, up from $1.2 billion a year earlier. Those include prime and subprime borrowers.

Birch: "The cost of funds is good. Access to capital is good and expanding. Most people expect our space to be expanding."

Photo credit:
GM FINANCIAL

At GM Financial, third-quarter loan originations were up 41.6 percent from the year-ago quarter, to about $1.4 billion. GM bought the former AmeriCredit in 2010 to create an in-house source that specialized in subprime loans and a leasing source for both prime and subprime customers.

With close to 12,000 new- and used-car dealerships as of Sept. 30, 2011, GM Financial had almost 2,700 more dealerships than it did a year ago and three times as many dealerships as it had in June 2009.

Kyle Birch, executive vice president of dealer services for GM Financial, said this week that GM Financial probably won't add many dealerships in 2012.

"We're pretty set," he said. Birch said the outlook for 2012 is positive. "The cost of funds is good. Access to capital is good and expanding. Most people expect our space to be expanding," he said.

Growth already has flattened out for subprime specialist Santander Consumer USA, which more than doubled in size from 2009 to 2010, largely though acquisitions.

Santander had $14.8 billion in loans outstanding at the end of 2010. That was up from $6.9 billion a year earlier. As of Sept. 30, 2011, however, it still had $14.8 billion outstanding. That was down from $15.4 billion a year earlier, according to a company report.

Experian's Zabritski said subprime lenders can expect a more competitive environment in 2012. According to Experian Automotive, interest rates already have ticked downward in all risk categories to an average of 8.6 percent for used cars in the third quarter, down from 8.8 percent a year earlier, and to about 4.6 percent for new cars, down from 5 percent.

Said Zabritski: "It's going to be more competitive."

You can reach Jim Henry at autonews@crain.com. Readers are solely responsible for the content of the comments they post here. Comments are subject to the site's terms and conditions of use and do not necessarily reflect the opinion or approval of Automotive News. Readers whose comments violate the terms of use may have their comments removed or all of their content blocked from viewing by other users without notification.

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Subprime competition heats up as rates fall

Jim Henry
Automotive News -- December 7, 2011 - 8:43 am ET

Subprime auto loans keep growing, with competition heating up in the segment and interest rates edging lower for the riskiest customers, according to Experian Automotive.

"If you talk to some of the lenders, they say some of the larger subprime lenders are buying deeper, putting out more competitive rates," said Melinda Zabritski, Experian's director of automotive credit.

"That pushes the bigger lenders to do the same," she said last week.

That should be good news for dealers, who have complained that the comeback in subprime continues to lag the rebound in prime-risk loans.

Zabritski, during a Dec. 1 conference call, reviewed several positive trends in auto loans for the third quarter:

• Delinquencies and repossessions were down as a percentage of the total. For the industry, the average amount charged off per repossession was down 10.7 percent, to $6,820, Experian said.

• The average amount financed rose for new and used vehicles. (See table)

• Leasing was even with the year-ago quarter, at 22.7 percent of all new-vehicle financing, Experian said. That was up from only 14.2 percent in the third quarter of 2009.

Subprime loans made up 21.9 percent of all new-vehicle loans originated in the third quarter, up from 19.1 percent a year ago. For used vehicles, subprime made up 51.6 percent of loans, up from 48 percent a year earlier.

Zabritski said it was a year ago, in the third quarter of 2010, that subprime loans increased their share of total loans for the first time since the recession began.

"Ever since then, we've seen subprime increase," comparing quarters year-over-year, she said.

Interest rates were down for auto loans across all risk categories, according to Experian. In the prime-risk segment, it's likely that incentives played a role in bringing down the average interest rate, Zabritski said.

In the subprime segment, incentives were unlikely to be a factor, she said.

Subprime rates had more room to decline because auto lenders raised those rates more when credit was tight, she said.

For new vehicles, the average interest rate was 4.55 percent, down from 4.98 percent a year ago. For used, the average was 8.6 percent, down from 8.83 percent.

"We are certainly seeing the biggest [rate] decrease in these higher-risk areas," Zabritski said. "These did see increased rates when the market tightened."

You can reach Jim Henry at autonews@crain.com. Readers are solely responsible for the content of the comments they post here. Comments are subject to the site's terms and conditions of use and do not necessarily reflect the opinion or approval of Automotive News. Readers whose comments violate the terms of use may have their comments removed or all of their content blocked from viewing by other users without notification.

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