If ever there were a business the attractiveness of which was in dispute among bankers, it is indirect auto lending.

Dealer lending is an activity with weak growth fundamentals and somewhat volatile profitability levels that today are below the hurdle rate for most banks. Yet, as in most banking businesses, there are star performers - institutions that almost always earn more, and sometimes appreciably more, than the needed 14% to 15% after tax. Typically, the keys to success are a detailed understanding of all relevant costs (and therefore the required pricing) and a capacity to control risk.

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