The indirect auto business is in a state of transition.

TCF Financial in Wayzata, Minn., surprisingly walked away from the segment on Dec. 1, and others like Regions Financial and Fifth Third Bancorp have tapped the brakes for reasons ranging from competition and credit concerns to regulatory pressure and low yields.

Auto sales are also projected to fall by 7% this year, according to Autodata and the Bureau of Economic Analysis.

What comes next is unclear. Some industry observers believe the herd could continue to thin as increased scale and sophisticated technology become more important.

Still, the retreat of several major lenders could create opportunity for those that choose to stick with the business.

“You don’t often see changes in a competitive landscape like this,” said Christopher Donat, an analyst at Sandler O’Neill. “We could be moving into a world where you’re at a disadvantage … unless you have national scale and the data and analytics that come with that.”

Larger firms such as Ally Financial, Wells Fargo, JPMorgan Chase and Capital One dominate the market, and a need for better data collection and analysis could spur consolidation much like it did in the credit card industry, Donat said.

Still, it remains to be seen if other lenders will head for the exits.

A pullback by some bigger lenders is good news for Ally, CEO Jeffrey Brown told attendees at a recent conference hosted by Goldman Sachs. Reduced competition could translate into more pricing power “without having to take incremental credit risk,” he said.

Ally is also investing heavily in new technology.

“We’ve got a massive effort underway with our core auto platform,” Brown said. “That’s a multiyear effort that will start coming online next year.”

At the same time, several smaller players remain committed to competing against bigger lenders.

HomeTrust Bancshares in Asheville, N.C., is pleased with its indirect auto platform, said Dana Stonestreet, the $3.2 billion-asset company’s chairman and CEO.

“We’re not one of the ones rolling out the back door,” Stonestreet said.

HomeTrust, which entered the business four years ago and now has about $150 million of indirect auto loans on its books, serves clients with high credit scores. Indirect auto lending is a branding opportunity that helps attract new customers, Stonestreet said.

“We’re focused on entering into a finance transaction with a customer as an introduction of our bank to that customer, with the goal of providing additional financial products and services,” Stonestreet said.

Only a tenth of HomeTrust’s indirect auto borrowers were existing customers. The company has been able to convince another 10% of indirect auto clients to sign up for other products and services, Stonestreet said.

“We’ve been able to put some shorter-term, higher yielding [loans] on the book and built some good household relationships,” Stonestreet said.

Fidelity Southern in Atlanta is also sticking with the business even though the $4.6 billion-asset company expects originations to decrease by nearly 30% this year.

“If properly managed and the paper is properly underwritten, it can be a wonderful asset class to have for the balance sheet,” said H. Palmer Proctor Jr., Fidelity’s president.

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