Bad news continues to pile up for the subprime auto lending sector.
Mercury Finance Co., the felled giant of the industry, last week reported a massive loss for the third quarter. And Ugly Duckling, another former pillar of the subprime world, said it is considering shedding some units.
Illinois-based Mercury reported a net loss of $27.6 million for the quarter ended Sept. 30. The loss included a $13 million provision for income taxes, as a result of an $18.5 million revision to comply with the Taxpayer Relief Act of 1997.
A $1 million gain from the redemption of a life insurance policy on the company's late accounting chief did little to offset the loss. James Doyle, the comptroller, died this year after abruptly leaving the company in the wake of the discovery of accounting irregularities.
The company may be consolidating some offices and revising its marketing plan in 1998, said chief executive William Brandt in a written statement.
Ugly Ducking, a Phoenix-based lender, is considering selling its Champion Financial Services, which buys subprime contracts from third-party dealers, and its dealer financing unit, Cygnet Finance.
The company said it is not contemplating any change in its primary business of selling used cars to subprime borrowers through its 36 dealerships and financing the sales.
Selling some units "would enable us to concentrate management's time and the company's financial resources on our core operations and allow each business to progress under its own management and corporate structure," said chief executive Ernest C. Garcia 2d. "The result could improve the company's long-term success and enhance shareholder value."
Management won't make a final decision on the plan before the end of the year.
