BOSTON-The rise in used car dealerships, largely a result of General Motors and Chrysler shedding franchises during restructuring, is leading more banks to focus on the used market.
The bread and butter of the CU auto loan portfolio is coming under greater pressure, say several analysts who see banks zeroing in on the former automaker franchisees who are hanging out a new shingle, as well as paying more attention to the overall used car loan market.
"We are seeing a rise in the major bank auto lenders that are reaching out to the used car industry-beyond the automaker dealerships and beyond all the new used car dealerships," said Christine Pratt, senior analyst for credit at Aite Group. "This could be an issue over time for credit unions as banks siphon some business from them."
Reaching Out To B's and C's
David Jacobson, president of GrooveCar, Hauppauge, N.Y., agrees, saying the new bank focus on used is also a result of mega-banks loosening their credit standards. "A lot of banks stopped working with used car dealers during the recession. Now these independent dealers are getting a lot of banks knocking on their doors."
Until recently, banks wanted only "perfect" credit, Jacobson noted. But with banks having more money to lend, the economy improving along with delinquency rates, there is a bigger appetite for risk. "The banks want more volume and they know they need to spread their offers to lower credit tiers. They realize the profit is not in A-plus credit-the profit is in someone who pays you on time in B and C tiers, where you make a good return on your money. A very competitive used car market is coming."
Banks are getting back into more outside-of-prime lending, observed Melinda Zabritski, senior director of automotive credit for Experian, Costa Mesa, Calf. "Pre-recession banks had a 36% to 37% share of the used market. The recession took that to the low 30% range. But we are seeing banks increase market share to a certain extent on used. Where they are increasing share is that outside-of-prime area."
