Some subprime auto loan specialists are trying to firm up their sagging stocks by financing face-lifts.
Last month Jayhawk Acceptance Corp., a Dallas-based finance company that provides loans to used car buyers with impaired credit histories, began helping customers pay for such procedures as liposuction, breast augmentation, and tattoo removals.
And at a conference for analysts and investors Wednesday, another subprime auto lender, Mercury Finance Co. of Lake Forest, Ill., said it too plans to offer financing for cosmetic surgery not covered by health insurers.
"You can bet there will be others joining in," said Stephen Schroll, analyst with Piper Jaffray Cos. "Anytime there's an untapped market like this with fragmented service, you can be sure these companies will be devising ways to pay for it."
Financing a portion of the $13.2 billion plastic surgery market is the latest sign specialty financiers are now being forced to scramble for business in their small niche of the consumer market.
Although the companies serve consumers banks mostly ignore, they do compete with banks in the securitization market. And Jayhawk chief financial officer C. Fred Jackson said investors will soon have the option of investing in tummy tucks and nose jobs along with mortgages, credit card lines, and other more-mundane assets.
Subprime auto lenders flooded the market with public offerings in recent years, and investor concerns over the companies' aggressive growth at the expense of credit quality have made their stocks some of the most volatile among financial services companies'.
In an effort to allay investors fears, subprime auto lenders are trying to get into other businesses as fast as they can.
Mercury, besides exploring plastic surgery financing, bought Lyndon Life Insurance Co. and consumer lender Midland Finance Co. last year. It also began offering a secured credit card last December and plans to expand solicitations.
"We need to get people to understand we don't just finance cars," said the company's president, John Brincat. Mr. Brincat said auto loans make up 86.7% of the company's receivables, but he would prefer they drop to 75%.
Jayhawk president Richard Hoffman said expanding into plastic surgery enables his company to reach people with better credit than their typical used-car customers. Jayhawk traditionally has served "D"-rated consumers - the worst credit risks.
"We want 'A' customers and we're getting them," Mr. Hoffman said.
Assuming the companies have enough capital to pay for expanding into plastic surgery financing, analysts say it could become a lucrative business for them.
The only trouble, said Mr. Schroll, is that companies can't recover a bad plastic surgery loan like a bad car loan.
"You can seize a car, but what are you going to do in this? Make people grow their hair back?"
