Last summer bankers were scouring the country for companies to buy that could help them expand their auto lending businesses.
What a difference a year makes!
Although car sales and demand for auto loans are strong, banks have almost completely shut down their searches for new auto lenders.
Recent debacles at subprime auto lenders like Mercury Finance Co., which bought loans made to consumers with the worst credit, have so tarred the entire field that almost no banks are willing to consider buying any company connected to auto finance, investment bankers say.
"It's fair to say the field is almost entirely vacant so far as banks are concerned," said Scott Willkomm, director at Prudential Securities.
Although an auto lender can be bought less expensively than a year ago, no bank executive wants to explain to shareholders why his company is expanding into such a tarnished field now, said one investment banker.
The only major bank to expand its presence in auto finance recently is Barnett Banks Inc., which in April completed its $570 million acquisition of Oxford Resources Corp.
But Oxford, Barnett's public relations staff emphasizes, was very different from most of the troubled upstart companies on the block now.
Oxford, based in Melville, N.Y., arranges leases for new cars to customers with clean credit histories. Leasing accounts for about 35% of all new car transactions, up from only 5% in 1979 when Oxford started, said its chief executive, Michael Pascucci.
Barnett is the biggest auto lender in Florida and one of the biggest in the country. Its acquisition of Oxford makes it one of the biggest auto lessors as well and will boost its clout with car manufacturers and dealers. "They've got a real leverage item now," said Richard Bove, analyst at Raymond James & Associates, St. Petersburg, Fla.
But investment bankers believe there will be few imitation deals simply because there aren't many imitators of Oxford. Most auto leasing businesses are too small to interest big banks, which prefer to build their auto leasing business through their own branches.
"There's really nobody else in the business like Oxford," said Mr. Willkomm. "Barnett got the worm."
Another reason banks may be shying away from auto lenders is that they know their own history of integrating nonbank companies is not good. The culture gap between a government-regulated bank and an independent auto financier is truly as vast as it sounds, investment bankers say.
They add that the strongest auto lenders, such as AmeriCredit Corp., are run by entrepreneurs who see a chance to expand now that the competition is thinning.
All that said, now is not a bad time for making loans to consumers with good credit.
Regional Financial Associates, West Chester, Pa., forecasts new car and light truck sales of 14.8 million this year, with delinquency rates of about 1.50%, or one-third that of credit cards.
And if Barnett benefits from its Oxford purchase-and the oft-skeptical Mr. Bove believes it will-it may be because it is doing one of the hardest things for bankers: buying a new business and then leaving it alone.
"They've let us do our business," said Oxford's Mr. Pascucci.
Norwest Corp. is the only company that has expressed any interest recently in expanding its auto finance business, investment bankers said.
But C. Douglas Mercer, managing director at Donaldson, Lufkin & Jenrette, said prices still may be too high. "I can't say I predict a lot of deals getting done," he said.