Another major New England banking company has decided that indirect auto lending is just not lucrative enough.
BankBoston Corp. said it would stop, as of Oct. 31, underwriting the auto loans it makes to consumers through car dealers.
The announcement came just after Fleet Financial Group, also based in Boston, exited the same business by selling its $2.2 billion indirect auto loan portfolio to Sovereign Bancorp, Wyomissing, Pa., for an undisclosed sum.
BankBoston's decision would cut 57 jobs at its Dedham, Mass., service center. Its indirect auto loan portfolio totals $1.5 billion.
The $66 billion-asset BankBoston-the second-largest New England banking company, behind Fleet-said it would continue to lend directly to consumers through its branches and by telephone, and to auto dealers through its commercial lending department.
The decision came after a series of strategic moves by BankBoston to concentrate investments in what it considers its core businesses: retail banking, asset management, and corporate banking in New England and Latin America.
"There has been a change in mind-set at the bank toward concentrating on what they do best," said Salvatore J. DiMartino, an analyst at Advest. The indirect auto loan "business was very small for them," he said, "but it had above-average risks."
Since January, BankBoston has gradually shed its less profitable consumer finance units.
In July, it sold Fidelity Acceptance Corp., a subprime auto lending unit, to Norwest Corp. in Minneapolis for $340 million. In the spring, it sold Ganis Credit Corp., a consumer finance unit specializing in lending for boats and recreational vehicles, to Deutsche Financial Services for $30 million.
The profit margins from indirect lending were too thin, said executives at the banking company. "Given the economics, it made sense to exit this business," said James Cosman, executive director of BankBoston's consumer finance unit. "We will continue to focus our resources on businesses that meet our financial performance requirements."
Industry insiders said the business requires massive scale to remain competitive. Profit margins from indirect auto lending have shrunk in recent years because captive lenders, like General Motors Acceptance Corp., have forced pricing lower, bankers said.
In contrast, lending directly to consumers through branches or by telephone has more attractive margins, analysts said. Direct auto lending also has some public relations value for companies-BankBoston among them- that want to position themselves as full-service retail centers.
"Like the mortgage industry, the auto loan industry is getting much more commoditized," said Richard T. Schliesmann, executive vice president at Wells Fargo & Co. and chairman of the Consumer Bankers Association's automobile finance committee.
Other commercial banks in auto finance, including Chase Manhattan Corp., NationsBank Corp., and Banc One Corp., have portfolios with more than $10 billion each.
Though there are no official rankings, bankers said those three banking companies are generally considered the industry heavyweights, each with businesses that cover several states.
Having a market presence that transcends regional boundaries is important for remaining competitive, said bankers.
