|The votes are in and the results have been tabulated from Auto Dealer Monthly’s (ADM) 3rd Annual Auto Finance Company Survey. Each summer, ADM queries dealers and finance department personnel from both the franchise and independent ranks to determine which banks and auto finance companies were most important to their retail, Special Finance and leasing business. Over 9,900 votes were tallied and sentiments have been clearly understood.|
It is important to note that, as always, the sea of finance companies is ever-changing. With ADM surveying dealers twice each year (the other time is in winter for the Dealers’ Choice Awards), it is interesting to note that no bank or finance company has ever maintained the top ranking from one survey to the next. This year is no different. The trend for the second half of 2006 is the emergence of some of the auto finance arms of large banks and reappearance of some long time familiar names. Both franchise and independent dealers alike voiced the opinion that in general, the performance for both their Finance and Insurance and Special Finance departments was up in the first half of 2006.
Prime Credit Captive Auto Finance Companies
The telling tale with the manufacturer’s captive finance companies is how often they are relegated to the secondary or tertiary position behind their non-captive competition. With their incentive rates and terms, captives work in stride with their retail counterparts, the ultimate goal being to move new vehicles off dealer’s lots. The result - First tier imports dominated.
American Honda Credit rose through the voting to the top spot for captive finance companies. With nearly a perfect score (99), not a single dealer rated a non-captive finance company ahead of Honda’s finance arm. “They are just amazing to work with. In our market we see all types of credit, and they buy, with good rates, as deep as anyone I have ever seen,” said Charlene Heinzig, finance director for Anderson Honda, Palo Alto, Calif.
Second place went to Mercedes Benz Credit (97), and while their dealer ranks certainly don’t provide the volume that Honda does, their dealers clearly have great respect for them. Toyota Motor Credit (80), who claimed the top spot in the 2006 Dealer’s Choice Awards and fell to third place was occasionally displaced by non-captive banks and finance companies.
Prime Credit Non-Captive Auto Finance Companies
To be considered in place of a captive, an auto finance company must have a broad spectrum of products, be easy to use and buy deep into the credit spectrum. To do this on a national basis is very difficult.
One source used by many dealers (both franchise and independent) is the local or regional credit union. Credit unions offer their members very competitive rates and are also more willing to look past minor credit transgressions. In ADM’s April survey, dealers rated CUDL (Credit Union Direct Lending), a company located in southern California that acts as a portal to participating credit unions (as well as banks and finance companies) as the top non-captive finance company even though they really are not a bank or finance company.
This time around, their presence was felt due to the high rankings of a myriad of different credit unions that participate through CUDL, while no credit union (nor CUDL) tallied enough votes on their own to push their way to the top of the rankings. As an aggregate however, they were quite a force being named the top prime credit financing source by 34.1 percent of the participating dealers!
When it came to naming a single institution, big banks became very prominent. In fact, all of the top five non-captives are, or are owned by, large national banks.
The top spot went to the holder of the spot in the 2005 Auto Finance Survey; New York based JP Morgan Chase Bank, named by 10.8 percent of the rating dealers. With the merger with Bank One in 2004, they strengthened their position as the largest bank provider of auto financing in the country.
Just narrowly eclipsed for the top spot, another mega-bank, Wells Fargo Bank, with their auto finance division Wells Fargo Auto Finance (WFAF), based in Des Moines, Iowa was named as the preferred source by 10.6 percent of the dealers. WFAF was the number two source named by franchise dealers, and easily number one by independents.
The third position went to the third largest indirect auto lender when measured by originations, Citizens Automobile Finance, a wholly owned subsidiary of Citizens Financial Group, Inc., a commercial bank headquartered in Providence, R.I. Citizens, the winner of the 2005 Dealers’ Choice Awards, received 5.9 percent of the votes by participating (all franchise) dealers.
Big banking remained present with the fourth position as WFS Financial Inc., named by 4.6 percent of the dealers. WFS was purchased in early 2006 by Charlotte, N.C. based Wachovia Corporation. The acquisition created the ninth largest indirect auto loan originator in the country. WFS was named the source of choice by 4.6 percent of the participating (all independent) dealers.
U.S. Bank, owned by U.S. Bancorp, Minneapolis, Minn. (the sixth largest financial holding company in the country) took the fifth position in the survey, named as the preferred source by 3.7 percent of the participating dealers (again, all franchise dealers). In doing so, with all of the top five non-captives being mega-banks (or their affiliates), it demonstrates that at least with a national audience, size prevails when it comes to serving the auto dealer.
With more than 50 percent of Americans having at least some level of derogatory credit history, one of the most important considerations for dealers when considering national financing sources is how deep the bank or finance company buys. When ADM polled dealers to find out what the lowest credit score they could usually get placed through prime credit financing sources, their answers were surprisingly all over the board. Interestingly, the mean (average) and median (mid-point of all replies) were very close, at 581 and 580 respectively.
The surprise was the wide spread variation. A number of franchise dealers indicated that their success with prime credit sources stopped as high as a 670 credit score, while at the other end of the spectrum, many others indicated they found success all the way down to a 450!
When queried, independent dealers offered similar diversity. With fewer prime credit banking sources at their disposal, the high end of the spectrum moved farther north, up to a 680 credit score. Interestingly, the low end went further south, with a handful of dealers (relying on credit unions) being able to place the majority of their prime credit deals all the way down to 425. The results meant the mean credit score considered prime by independents was 594, and the median was 600.
When it comes to leasing, the scales tip heavily towards the franchise dealer, along with the captives and their factory supported lease programs. Manufacturers have a vested interest to both move new cars off the showroom floor, as well as to keep the terms limited (for shorter buying cycles).
Franchise dealers report that retail leasing accounts for 17.1 percent of their retail deliveries, whereas with independent dealers, it accounts for just 0.4 percent of their business.
Dealers from General Motors, Ford Chrysler, Honda, Hyundai and Toyota sang the praise of their factory arms, with 69.3 percent indicating that when it came to leases, there was no one better than their captive leasing companies.
The domestic manufacturers appear to be in a more competitive position as compared to their foreign counterparts, especially when dealers have access to both. GMAC led the way, even gaining the nod frequently when dealers held Ford, Chrysler and Toyota franchises. Only once was Toyota ranked higher than GMAC when both were listed, and GMAC was the leasing source of choice of 31 percent of the responding dealers.
Chrysler Financial narrowly edged Ford Motor Credit, with the two being named 16.1 percent and 15.3 percent of the time respectively. Toyota Motor Credit led all imports with a 5.3 percent rating, followed closely by Mazda American Credit at 5.1 percent.
The best the non-captives could do was to try to keep the manufacturer’s arm in sight. The top non-captive was again represented by big-banks as U.S. Bank was named by 10.7 percent of the participating dealers. Wells Fargo Auto Finance was ranked second, being chosen by 6.9 percent of the dealers, with JP Morgan Chase Bank third close behind at 6.7 percent.
Special Finance Companies
In the ongoing ebb and flow of the sub-prime credit, it appears that big-banks are enjoying their time in the sun. Even with that, sub-prime credit is influenced by what region of the country the dealership is located in (which impacts which region or office of the finance company you work with) and the relationships within the finance company.
Dealers and their staffs have learned that while the relationship is key, who that relationship is with is just as important. Where finance companies have many branches, they often experience polarized opinions from dealers as they deal with varied executions of a central plan. Other companies, that have more centralized buying and funding tend to live or die by the consistent execution of a much smaller group of people. Both sides have their advantages in the eyes of a dealer, but accordingly, you will see some companies’ popularity swing wildly across varying parts of the country.
In keeping with tradition, no finance company has ever placed at the top of an ADM survey more than once, and for 2006, yet a new champion has been crowned. Named by nearly 20 percent of all responding dealers, Wells Fargo Auto Finance has truly backed up their claim of being a full spectrum financing source. This is a significant jump from their fifth place finish one year ago when they gathered just slightly over 8 percent of the votes. Wells Fargo’s dominance was so strong with franchise dealers that they nearly doubled the vote of the second place finisher.
Reinforcing their dramatic comeback, AmeriCredit (the 2005 winner) finished second overall in the Special Finance category receiving 12.7 percent of the overall votes (down from 16.6 percent in 2005). Interesting, they were rated nearly identically by both franchise and independent dealers.
Third place went to the auto finance arm of another big-bank. CitiFinancial Auto, a division of Citigroup, Inc. a New York, N.Y. based bank, climbed from last years 6th place ranking by being preferred by 11.1 percent of the participating dealers. CitiFinancial has steadily increased their market presence and was ranked third by franchise dealers and fourth by independents.
Fourth place overall (up from 10th in 2005), based on outstanding independent dealer ratings is the Chase Custom Auto Finance division of JP Morgan Chase Bank, at 8.1 percent. Independents rated them a close second place to Wells Fargo. What is significant is that 2006 is the first time that dealers have rated two finance companies (Wells Fargo and JP Morgan Chase) in the top four of all three financing categories: prime, retail leasing and Special Finance.
Improving on last year’s 7th place rating, 5th place overall in the Special Finance category steps back away from big-banks to a finance company that has been in Special Finance for years. Consumer Portfolio Services, Inc. (CPS) has been on the market since 1991 and services both franchise and independent dealers. With a 5th place ranking by both franchise and independents, CPS moved into the overall top 5 with 7.9 percent of the overall vote.
Two perennial competitors, both with big bank ties, fell out of the top 5 for the first time in the history of the survey. Capital One and HSBC tied with 6.7 percent of the votes. Dealers’ sentiments indicated that both have been moving their market niche toward the near-prime customers, leaving the more traditional sub-prime credit customer for other finance companies.
The final three positions in the top ten were three newcomers. Portfolio based finance company Credit Acceptance Corporation, Southfield, Mich., ranked eighth with 3.0 percent, with all votes coming from independent dealers. Ninth place went to a wholly owned subsidiary but separate operation subsidiary of Capital One, Onyx Acceptance Corporation. Onyx, on the strength of their independent dealers, gathered 2.1 percent of the votes. Rounding out the top ten was a division of GMAC, Nuvell Financial Services. With Nuvell only being available to General Motors dealers, it is interesting to note that they had enough support from their dealers to be named as the top source by 1.8 percent of the overall vote.
Statistical Special Finance Data
The split of retail business reported by dealers going to SF companies varied significantly between franchise and independents. Franchise dealers reported only 27 percent of their business as SF, as opposed to independents that claimed 40 percent.
Franchise dealers reported on average that they were working with seven different SF companies and routinely funding contracts with four of them each month. Independents, again with fewer options, average only four per dealer, but they use them all every month.
Independent dealers are more loyal to their SF sources as their top volume company receives 39 percent of their business. Franchise dealers on the other hand give their top volume SF company just 32 percent of their deals.
When asked on a scale of one to five, with five being ‘much better,’ participating dealers gave their Special Finance business an overall 3.8, compared to last year’s 3.0. In all, 43.3 percent of the responding dealers stated their SF performance was up for 2006.
So there you have it, the “Who’s Hot and Who’s Not” in the auto finance world – the answers to some of the most frequently asked questions by dealers and department managers to Auto Dealer Monthly magazine and on AutoDealerDaily.com. Most importantly, the answers have come from you, those that work in the industry every day.
Vol 3, Issue 9
In a move billed as an industry first, DealerPolicy will showcase an all-inclusive dealer auto insurance solution at NADA 2019.