Lenders predicting loan and
originations increase, TV host bullish on 2010, TARP cuts into

Volume uptick expected

After nearly a year of predictions for
flat or shrinking volume, lenders expect loan and lease
originations to increase as much as 10 percent in the next 12
months, according to the Auto Finance Forecast Fall 2009, a survey
conducted by Auto Finance News.

Even floorplan originations, expected to fall 10
percent to 20 percent by most respondents in the spring survey,
have gained an improved outlook: a 1-10 percent decline.

Net interest margins, meanwhile, are poised for a
rebound. More than half of respondents expect as much as a 10
percent increase for the coming year, as opposed to a 10 percent
drop predicted in the spring.

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“I really expect to see some room for growth in
margins over the next 12 months,” wrote one respondent. “The cost
of funds has continued to decrease, and we see some real
opportunities to keep yields where they are without lowering our
buying standards.”

As for underwriting, more than half of respondents
expect guidelines to stay the same. Another 38.1 percent predict
tightening. By comparison, though, 26 percent of respondents to the
spring survey forecast stabilisation, while 72 percent expected
tightening. Still, the outlook for credit performance is murky.
Delinquencies will climb another 1 percent to 10 percent this year,
lenders predict, as consumers grapple with lost jobs or reduced

“The biggest negative will be increased
delinquencies due to unemployment,” another respondent wrote.

Bullish times for industry in 2010?

Declines in fleet leasing and rental car
business will contribute to a stronger auto industry for the next
five years, said John McElroy, host of TV show Autoline
. McElroy dubbed 2010 to 2015 the industry’s “Golden
Years,” in a presentation at the annual Automotive Fleet &
Leasing Association conference in early September.

With expectations for about 10.3 million
new-vehicle sales this year, volume will have plunged 40 percent
since 2006. Combined, Chrysler, Ford Motor Co., and General Motors
posted $53.4 billion (£32.7 billion) of losses last year.

“We have never seen a collapse in the auto industry
like this,” McElroy said.

But a combination of factors – including fleet and
rental – will bolster the industry as a whole, and the used-car
market specifically. For starters, commercial fleets will probably
shave 500,000 vehicles off their purchases this year, while daily
rental companies will likely buy one million fewer vehicles, plus
they will keep them longer, McElroy said.

Also, because of the nearly 7 million-unit drop in
new-car sales in the past few years, there will be fewer ‘nearly
new’ cars overall. And tightened credit policies will undermine
originations and car sales. Another factor: 1 million consumers
will buy used cars rather than new.

“Ultimately, that means used-car prices will be
under pressure to go up for a long time,” McElroy said.

Another positive note for the industry relates to
inventory levels. Historically, 60 days’ worth of vehicles on the
lot is the rule of thumb. But these days, the average inventory
level is 29, he said, adding that Toyota Motor Co's is
only 16.

“I’ve never seen it this low,” he said. “‘Cash for
Clunkers’ really cleaned out inventory and worked to bring people
back [into the dealership],” he said. “But how sustainable is

For the long term, pent-up demand combined with
reduced inventory and a shift in the market creates a perfect
alignment for automakers.

TARP sees banks rein in expenses

Chrysler Financial employees travelling
for business without an overnight stay will no longer be reimbursed
for lunch, while SunTrust Banks Inc staffers have been relegated to
flying economy class.

Those are just some of the guidelines established
earlier this month by financial institutions that received funds as
part of the Treasury Department’s $700 billion (£430 billion)
Troubled Asset Relief Programme.

TARP recipients were required to devise policies
defining ‘excessive’ or ‘luxury’ expenditures; office and facility
renovations; aviation and other transportation services; and other
similar items, activities, or events.

Following are a few other examples of luxury
expenditure guidelines from financial institutions that offer auto

• Citigroup: Tickets for sporting or
other events used for client entertainment must be bulk purchased
to minimise costs.

• Fifth Third: Any proposed expenditure
exceeding $10,000 must be approved by the board’s Compensation

• Huntington Bancshares Inc: Corporate
retreats, off-site training sessions, and other meetings must be
held within the bank’s branch network footprint.

Auto Finance Forecast: Underwriting trend expectations