E-Loan Inc. is trying to rely less on online advertising and more on alliances in auto finance, a business where it is trying to expand to make up for lost mortgage refinancings.
Last month the Pleansanton, Calif., company began offering car loans through the online auctioneer eBay Inc., a growing force in auto sales. E-Loan's shares surged 13% Monday, when the relationship was announced.
Mark Lefanowicz, E-Loan's president and chief operating officer, said in an interview that research shows that about three-quarters of consumers research auto purchases online, but few turn to online sources for financing. That will change, he said, and E-Loan wants to be "positioned to take advantage" of the change.
But he said it would cost E-Loan too much to advertise through traditional online channels, such as portals or search engines. (It used to rely heavily on such a strategy until backing away from it early last year.)
Rather, Mr. Lefanowicz said, E-Loan can benefit from associating with popular sites. "Somebody is already spending money to get them to their site. I want to be next to where people have already spent their money."
When people start shopping for a car, "it's not the financing they're looking for," he said. "It's the car they're looking for."
According to the companies, eBay Motors is the top automotive Web site in terms of annual gross merchandise volume ($11.1 billion). Mr. Lefanowicz said 40,000 cars a month are sold through eBay, though he acknowledged that E-Loan would not finance that entire amount. Units of Capital One Financial Corp., General Electric Co., and HSBC Holdings PLC also provide auto financing for eBay users. (PayPal Inc., an eBay unit, provides consumer lines of credit, which the auto finance section of the eBay site suggests as another option.)
In a typical marketing alliance, all lending business is funneled to a single lender. In another type of model, such as the one used by LendingTree.com, each lead is given to several lenders, which then compete for the business.
eBay typically directs each consumer to a single lender, but it has several lenders to choose from. To make the choice, it asks the prospective borrower for the price and make of the vehicle and the state where the borrower lives, an eBay spokeswoman said.
Mr. Lefanowicz said he could not reveal the "methodology" eBay would use to direct consumers to E-Loan, or the other terms of the deal. But he said that typically such alliances include payments for referrals to the lender's site, applications, or closed loans.
He called the relationship "a good opportunity to basically start doing business" with a company gaining influence in the car business.
E-Loan's ability to offer secured auto loans quickly - some approvals are made in 15 minutes - and without the vehicle inspections or appraisals frequently required by traditional auto lenders gives it a leg up, Mr. Lefanowicz said.
George Sutton, an analyst at Craig-Hallum Capital Group LLC, estimated that E-Loan made $660 million of auto loans last year. Getting even a "modest" amount of the lending generated on eBay would mean "a significant increase for E-Loan on the auto finance side."
Last month E-Loan announced that it had entered a marketing alliance with Edmunds.com, an automotive information site, and had become the preferred financier for Zap, a maker of energy-efficient cars.
Auto revenue accounted for 10.5% of E-Loan's revenue in the third quarter, up from 6% a year earlier. However, its auto loan volume fell 8.7% from a year earlier, to $177 million. The number of loans rose slightly. E-Loan is scheduled to report fourth-quarter results Feb. 17.
In a Securities and Exchange Commission filing Friday, Wells Fargo & Co. disclosed that it now controls 5.2% of E-Loan's common shares. (Wells announced a slew of such purchases.)
Wells Fargo Bank and two of the San Francisco company's investment advisory subsidiaries, Wells Capital Management Inc. and Wells Fargo Funds Management LLC, acquired the shares. A Wells spokeswoman said she could not discuss the matter.
Through its bank, Wells Fargo owned just 0.001% of E-Loan in September. In its filing Friday, Wells said the shares were not acquired or held with the intent of "changing or influencing the control of the issuer of the securities."
The surge in E-Loan's shares may have been related in part to Wells' disclosure. Speculation about a possible takeover of E-Loan intensified last month, when Capital One Financial Corp. announced it was buying National Bank of Kansas City's eSmartloan for $155 million in cash.
"We have a long-standing policy of not commenting on merger or acquisition rumors," Mr. Lefanowicz said when asked if Wells' purchase indicated anything.
