A Rundown of the Many Companies Still Serving the Special Finance Market

It only seems appropriate that this month’s column focus on the auto finance companies that are serving the special finance market. Without a doubt, it has been a tumultuous year, but contrary to the perspective of many dealers, finance companies are still issuing loans. One of the most often-asked questions I used to receive was, “Who is hot?” Nowadays, it has become, “Who is in the market?” The good news is that there are still options for most dealers across the country.

Since this issue revolves around the Dealers’ Choice Awards, it seems only fitting to start with the top of this year’s list. Chase Custom Auto Finance has been a leader in the SF industry for years. While not known for large advances, they have long been known across the country for consistency in buying deals. SF managers with whom I regularly communicate continue to praise Chase for that fact. Chase made one of the most significant changes in their history last summer when they changed the guidebook used to calculate loan advances from NADA (most of country still uses this book) to Black Book, and in February, they converted the West Coast back to Kelley Blue Book. While the move to Black Book certainly wasn’t popular with most dealers, it did allow them to continue their consistent decisioning. With about 25 percent of their business coming from independents, they are truly one finance company that serves both sides of the fence well.

Over the past 12 months, Capital One has moved into the top spot for market share, not so much because of a huge spike in volume, but rather due to a contracting of the other companies serving the market. While they serve only franchise dealers (with very rare exceptions), dealers have continually reported that the company has become much more dealer-friendly. Capital One’s advances are still competitive, and like Chase, Capital One has excellent capitalization, which only aids their lightning-fast funding.

Another top-tier finance company still very strongly in the game is CitiFinancial Auto. Over the past 12 months, like many other finance companies, CitiFi has significantly reduced their overall dealer count, eliminating dealers in a number of states. While this certainly impacted dealer sentiment in the 2009 DCA rankings, dealers still doing business with CitiFi report continued good results. They too are now focusing on franchise dealer relationships.

Drive Financial/Santander is also stepping up their presence as a top-tier/top-volume finance company. The first thought most dealers have of Drive is that of a “high-fee bottom feeder” after years of serving that niche, but since the buyout by Santander two years ago, with their One and Complete programs, dealers have been using them more and more to serve the same customer base as the three aforementioned companies. Drive also is focusing just on franchise dealer relationships.

A smaller finance company, but one owned by the twelfth largest bank in the U.S.—BB&T—is Regional Acceptance. Regional is selective in their relationships, doing business in just over half the states in the nation and working only with franchise dealers it feels have the highest degree of integrity. By being selective, the dealers who are doing business with Regional generally report very high satisfaction with the finance company and very solid relationships.

Looking past these companies, two other companies, AmeriCredit and the combined entity of Wells Fargo/Wachovia have been going the opposite direction. As we go to press, AmeriCredit was just granted an amendment and extension of its master warehouse credit facility and extended the term from October 2009 to March 2010. This was paramount in AmeriCredit being able to continue operations, as they had exceeded delinquency covenants in their original agreement. Nonetheless, with a severely constrained capital market, AmeriCredit has contracted from originating $9 billion in 2007 to an origination rate in 2009 that is barely above $1 billion. That essentially means AmeriCredit is originating nearly 40,000 fewer SF deals a month than before. In 2003 and 2004, they had to contract to rebuild and did so in stellar fashion. One can only hope they can do it yet again.

The combination of Wells Fargo and Wachovia has proved to be a bit of an enigma for many dealers. Many dealers have looked at the union as unfortunate; they had enjoyed a good relationship with one of the two companies only to later be faced with a whole new set of rules and people to form relationships with.

Another finance company serving both independent and franchise dealers well in select states is Fireside Bank. They currently do business in 10 states scattered across the country, as well as with some national dealer groups in another seven states. They are known by the dealers they serve as buying consistently and funding quickly.

As you drop into the rougher credit tiers, equity is king. It takes down payment to gain credit approval and make any gross profit. It also means a dealer must own appropriate inventory to work with the finance companies that seem to dominate this space. Those companies are Credit Acceptance Corporation (CAC), Drive Financial (Solutions program) and Westlake Financial. The good news for independents is that both CAC and Westlake welcome independent dealers. Both of those companies offer decisioning software that allows you to structure a deal for nearly any customer, and both companies are well capitalized and have enjoyed solid growth and profits over the last 12 months.

To the chagrin of independent dealers, only four finance companies have been listed that are signing up independents, one of which has a rather limited scope. Does that mean independents are left out of the SF mix? Certainly not, but it does mean they must work harder to find financing solutions. From the recent posts on our Sister Web site, AutoDealerPeople.com, independents report working with a number of smaller or regional companies. Finance companies (listed here in no particular order) such as Western Funding, Service Finance, Professional Financial Services, North American Auto Finance and Heritage Acceptance (among others) have been noted by independent dealers as vital sources. Additionally, there are a number of companies such as Automotive Banking Solutions and Driveway Financial Services that have been noted as additional options for independents.

An additional source for franchise dealers recently mentioned on AutoDealerPeople.com was U.S. Bank’s Alternative Finance program. They are currently doing business in 16 states and, in general, seem to buy a slightly higher quality SF customer, but do so with very few fees and allow good income opportunities on the back end.

It is not my purpose to list here every financing source available in the market today (as I don’t have enough space to do so), but rather to make the point that there are options, even for independents. No, they aren’t as plentiful as they used to be, but there is every reason to take advantage of the SF business. It is not only a matter of understanding that credit parameters and advances are no longer what they once were, but also a matter of buying inventory and structuring deals appropriately.

I also remind dealers that the finance company landscape is fluid like the sea—some companies are ebbing and some flowing. All one has to do is look at how the Dealers’ Choice Award rankings have varied from year to year. The best advice I can offer is to continually interact with other dealers and SF managers, just as I do. Discussion groups on Web sites like AutoDealerPeople.com can allow you to do that, and perhaps you’ll find a company that can make a significant impact on helping you put deals together.

Until next month,
Great selling!

Vol. 6, Issue 4