Chase-Mazda pact may give short shrift to first-time,
used buyers

Execs weigh in on capital constraints, profit
pressures

Wachovia buyout puts dealers in limbo

CAPTIVES

Chase-Mazda pact may give short shrift to first-time,
used buyers

As Chase Auto Finance is phased in as the replacement lender for
Mazda American Credit, dealers worry that used-car and first-time
buyers may face limited – or more expensive – financing
options.
 On Oct. 1, Ford Motor Credit Co. ceded its position as the
primary provider of financing for Mazda Motor Corp. car buyers.
Instead, dealers may submit loan and lease applications to Chase
Auto. 

“We will offer full-service financing” for Mazda’s 665 dealers
nationwide, said Mary Kay Bean, a spokeswoman for Chase Auto.
Specifically, the financier will offer prime, near-prime, and
subprime loans; leases; floorplan and commercial loans; treasury
and personal banking services; and GAP, extended warranties, and
dealer marketing programs. 

Still, Mazda dealers worry that some car buyers will now have to
pay more for financing. The difference stems from the fact that MAC
uses Kelley Blue Book for its used-car values, while Chase uses
Black Book. “There’s a couple thousand dollars difference in value”
between the two, said Jane Shek, finance manager at West Covina
Lincoln Mercury Mazda. “It will make customers put more money down
– an extra couple of thousand dollars.” 

Dealers also worry that Mazda American Credit’s longstanding
first-time buyer program might disappear now that Chase has taken
over financing. MAC has historically offered special financing
rebates and incentives – like $500 (£330) bonus cash – to college
graduates.

Marcie Belles


CONFERENCE REPORT

Execs weigh in on capital constraints, profit
pressures

With the credit markets seized up and access to capital
constricted, auto financiers are shaving expenses and honing
risk-management procedures. 

“These are very, very challenging times, both on the asset side
of the balance sheet and the liability side,” said Dan Berce,
president and chief executive of AmeriCredit Corp. during an
executive panel at the Auto Finance Summit in October. “This is
probably the worst environment I have seen in my 16 years [in the
business]. We have never seen these two factors collide.” 

For any auto finance firm, particularly an independent company
like AmeriCredit, access to capital dictates origination volume.
With the capital markets in such a funk, AmeriCredit’s loan-making
abilities have been reduced dramatically. As yet, there is no end
in sight. 

The troubles first started in July 2007. The situation improved
last October when investor confidence was restored a bit, then
worsened again. “The trough keeps getting deeper with each wave
that goes out,” Berce said. “As an independent company, we look at
the bank market and the securitisation market. Getting bank credit
is nonexistent today. Banks are de-levering so fast – they don’t
have the capital to hang on.” In the securitisation market, even
top-rated securities won’t sell, he added. 

Though the economic environment is slightly better for Scotia
Dealer Advantage because of its location in Canada, “for every loan
that goes on the books, one has to come off,” said CEO Jim Case.
Still, the Scotiabank auto unit is “in growth mode from an
origination perspective,” he said, “but it is careful growth.” For
the past six months, Scotia Dealer Advantage has been moving
upscale, to near-prime lending from subprime and
nonprime. 

As the cost of funding rises, auto financiers are also looking
to reduce expenses. “Our profitability targets haven’t changed, but
the cost of capital is up,” Case said. “We have to be 20 per cent
more efficient in running the book to [hit the same targets]. As
our book gets bigger, we’re paying more attention to the nickels in
the background.” 

CitiFinancial Auto, too, is facing profitability pressure. “We
run our business on return-on-equity models,” said Kim Pulliam, the
company’s chief marketing officer. “Our ROE hurdles have doubled in
the past year.”

To combat the squeeze, CitiFinancial Auto is offshoring more
back-end functions, like data processing, servicing, and
administrative functions. “We are looking to pull costs out,”
Pulliam said, “to do more with less.” 

Also, the company has zoomed in on “profitability of individual
loans and individual loan vintages,” she said. “We put a lot of
focus on analytics and statistical models for loan pricing and
structure.” The upshot: There is more benefit to find. 

One of AmeriCredit’s strategies for keeping costs in check
relates to its dealer-customers. “As an auto lender, we’re probably
actively managing our dealer base more than we ever have,” Berce
said. Among other things, the company favours those who put
together the cleanest loan packages.

Marcie Belles


M&A

Wachovia buyout puts dealers in limbo

Wachovia’s auto finance unit is poised to lose loan volume while
its parent undergoes an acquisition. Wachovia’s banking operations
were set to be bought by Citigroup Inc., in a $2.2bn (£1.5bn) deal
brokered by the Federal Deposit Insurance Corp. on September 29,
but the acquisition was sidelined four days later, when Wells Fargo
& Co. agreed to buy the entire bank for $15.1bn (£10.1bn).

Meanwhile, dealers have noted processing slowdowns and more
denied loans than normal at Wachovia Dealer Services, the bank’s
auto finance unit. 

“I sent a deal two days ago,” said Andriy Ishuninov, finance
manager at Galpin Lincoln Mercury Volvo Mazda, in Valencia,
California. “I sent it around noon and got a response the next
morning.” The prospective car buyer had a 660 credit score,
“something we would’ve thought they would buy,” he said. But the
application was denied. 

Wachovia had been “buying pretty deep for us,” Ishuninov said.
Jane Shek, finance manager at West Covina Lincoln Mercury Mazda has
also noticed service hiccups at Wachovia Dealer Services. “They’re
turning down deals,” she said. “It’s a mess with them. It takes a
day and a half to get a decision. Everything you try to give them
needs supervisor approval.” As such, Shek has not “sent a deal in a
few days,” she said. 

When contacted by Auto Finance News, Alhambra Mazda Finance
Manager Nick Borrelli had applications “pending for a day” with
Wachovia Dealer Services. The dealership averages 10 to 15 deals
per month funded by Wachovia. 

Despite apparent delays, the financier is working to convince
dealers that processing and decisioning are continuing
unhindered. 

“They were sending out faxes saying it’s business as usual,”
said Cyndee Sherrick, finance manager at Tustin Mazda. “Three
months ago I asked them, ‘How long is it going to take for your bad
mortgages to hit the car paper?’ They said, ‘It’s not.’ But it
is.” 

 A Wachovia spokeswoman failed to return calls for
comment.