Dealers, customers stand to win as lenders battle for market share

DALLAS -- Growing competition is forcing many auto lenders to grant easier access to auto loans, especially in subprime, and that's good news for dealers and their customers.

That's one of the takeaways from panel discussions at last week's Auto Finance Risk Summit here, hosted by Royal Media Group.

The rivalry, besides driving auto lenders to lower interest rates, ease approvals and cut margins, is pushing them to explore other niches, which dealers potentially can exploit. Some examples:

• High-mileage used cars. Several lenders said the ongoing shortage of newer used cars has pushed them to finance older used cars.

• Medium and small markets. One lender, Regions Bank Dealer Financial Services in Birmingham, Ala., said it wants more business with dealers in medium and small markets, where the bank believes it could have an advantage over big, national lenders. The bank operates in 16 states.

• Value-added services. Southern Auto Finance Co., an independent, subprime lender that operates in 10 states, said that to cement closer relationships with dealers, it is taking on some of the additional legwork necessary to book subprime loans, such as verifying customer information instead of making dealerships do it.

The ongoing comeback in subprime was a hot topic at the summit.

Private-equity funds and other investors are pouring money into subprime auto loans, said Daniel Parry, chief credit officer for Exeter Finance Corp., a subprime and near-prime lender in Irving, Texas. For dealerships and their customers, that spells easier access to subprime loans.

"Everyone is seeing all kinds of money coming into the space. ... Everybody is trying to build scale. Everybody is competing. Some could be sacrificing lending standards for scale," he said.

Exeter is part of the private-equity trend. Blackstone Group, a private-equity firm based in New York, bought Exeter in August 2011, accelerating plans to take Exeter nationwide from about 40 states earlier this year.

Cristian deRitis, director of consumer credit economics for Moody's Analytics Inc. in New York, said that while it's true subprime loan originations are up and lending standards are looser, press reports of what he calls subprime "hysteria" are exaggerated. "This is not something to get alarmed about, certainly not at this point," he said.

He said loans for subprime customers with credit scores below 620 made up more than 30 percent of auto originations in early 2006. That fell to less than 15 percent in 2009. Subprime originations have come back since then, but they remain under 20 percent of the total market, deRitis said.

He said that for now there's more than enough pent-up demand from customers who put off car purchases to sustain the auto finance market. If anything, he said, "Pent-up demand is building."