US View: Signs of recovery, HSBC
exits the auto sector, foreign interest in the ABS market
increases, social media

Regulation

Recovery begins

Though the ride will be turbulent for the
near term, the industry’s tailwinds have started to pick up. That
was the sentiment voiced by senior executives from some of the
nation’s largest lenders during a panel discussion at the Auto
Finance Summit in October.

“Foreclosures are increasing, and there’s a spike
to come in unemployment,” said Bill Katafias, executive
vice-president of Wachovia Dealer Services. “But there is still
some opportunity.”

For one thing, lenders are benefiting from strong
used-car values and mitigated losses at auction. For another,
credit performance is starting to stabilise.

“Everyone’s portfolios are shrinking, so the
absolute dollars of problems are starting to subside because the
denominator is going down,” said Tim Russi, an EVP at GMAC.

And in the subprime space, the competitive
environment these days is “better than we’ve seen in some time,”
according to Daniel Berce, president and chief executive of
AmeriCredit Corp.

Yet lenders caution that stiffer regulatory
requirements, stalled vehicle sales, more guarded leasing policies,
and further financial troubles for dealers could jeopardise the
industry’s smooth flight path. On the wholesale side, dealers are
not out of the woods yet.

As for leasing, the offering is still an important
aspect of captives’ product menus, but programme specifics have
changed since the credit crisis started.

Russi said: “The leasing product that everyone
knows and loves is a very cheap lease rate. That’s very expensive
to the OEMs, and we’re not willing to spend that anymore. We’ve
re-entered the market, but clearly we’re not seeing not the
penetration we saw before.”

The biggest challenge the industry will face in the
near-term, though, will come from lawmakers.

“The auto finance industry has been running below
the radar from a regulatory perspective,” Berce said, singling out
the Consumer Financial Protection Agency, a federal watchdog being
developed to police the financial services industry.

While regulators carve out oversight authority for
the CFPA, lenders are focused on keeping expenses in check, keenly
monitoring originations, and making strategic investments.

Mergers and
acquisitions

Santander firms up
portfolio

Santander Consumer USA is further
entrenching itself in the sector with a $904 million purchase of
HSBC Finance Corp’s auto loan servicing business and $1 billion of
receivables. The acquisition, announced on 10 November and slated
to close in the first quarter of 2010, would include HSBC’s loan
servicing facilities in San Diego, California, and Lewisville,
Texas.

While the deal marks HSBC’s official exit from the
auto sector – a move on the drawing board for nearly two years – it
also points to Santander’s efforts to expand servicing capabilities
and climb the ranks among the nation’s top financiers. Santander
currently originates loans under the Drive and Santander Auto
Finance brands. It will be interesting to see how the company
leverages its newfound service centres.

ABS market

Foreign investors eye auto
ABS

Though the auto loan-backed
securitisation market has returned as a shadow of its former self,
pricing stabilisation and strong credit performance have sparked
demand from a new set of investors.

In addition to traditional players like pension
funds and hedge funds, some foreign investors have expressed
interest in nonmortgage securities, said Robert McDonald, a
vice-president at Goldman Sachs & Co.

The auto ABS sector has rebounded since plunging
into near oblivion late last year. Triggered by the Term
Asset-Backed Securities Lending Facility, a government-sponsored
programme commonly known as TALF, auto loan and lease
securitisations are getting done, and spreads are improving. In
addition, subordinate auto ABS and floorplan-backed transactions
have been issued.

Still, the road to recovery has been tough. Pricing
has improved, said Jeffrey Young, president and chief executive of
Mitsubishi Motors Credit of America, but not to the levels of 2007
“when spreads were not just in the single-digits but they had a
negative sign in front of them.” Credit enhancement has increased
“dramatically,” McDonald said, and there is “still work to be done
to determine who will bear the cost.”

Meanwhile, capital markets executives are still
wary of the funding environment.

“I don’t think we should assume spreads will
continue to tighten,” McDonald said. “They can snap back at a
moment’s notice.”

Technology

MyAutoLoan.com focuses on
web

While it took radio 38 years to reach 50
million users, social networks Facebook and MySpace accomplished
the feat in just two. Add on the fact that 96 percent of Generation
Y uses social media, and the argument in favour of leveraging such
sites for auto finance is compelling.

“From a channel standpoint, social media is
absolutely huge,” said Dale Peterson, president and chief operating
officer of MyAutoLoan.com.

MyAutoLoan.com has largely focused its efforts on
the social networks Facebook and Twitter, as well as on its
corporate blog. The company began its journey early this year.

To get started, the company created accounts and
posted content, which it then shared with a growing base of
“friends.” Internally the company met weekly to establish goals and
metrics.

The goal is to post two entries on the corporate
blog per week, which are then shared via Twitter. For instance, a
company employee may post a blog with tips for how to refinance an
auto loan.

“Everybody at the office ‘tweets’,” Peterson said,
referring to the term for sharing posts using Twitter. In addition
to the company’s Twitter page, employees maintain their own
individual pages, he added.

On any given day, MyAutoLoan employees might spend
a combined hour and a half posting content or interacting with
potential customers on social networks.

The efforts online have paid off. Page views of
company press releases have shot up 108 percent, and the lender has
4,800 followers on Twitter. Maybe more importantly, loan
application volume has increased “in a very difficult year where
we’ve actually lowered advertising costs,” Peterson said.

Still, leveraging social networks “is not an
end-all,” he cautioned, “but another tool in the marketing tool
shed that can be built and implemented to success.”