Lenders ease floorplan terms
The effects of slipping vehicle sales are creeping into lenders’
wholesale financing arrangements.
Floorplan providers have started to offer concessions to dealers
who finance inventory with them, as vehicles languish longer on
lots and the ratio of new-to-used vehicles shifts.
Some lenders, including Bank of America, Ford Motor Credit,
GMAC, and Wachovia Dealer Services, are lowering rates on floorplan
lines, extending repayment options, or working more closely with
dealers to avoid defaults on these high-value financing
arrangements. The moves come in response to dealer reductions in
floorplan lines anywhere from 10 per cent to 50 per cent.
In general, floorplan interest rates have dropped by one
percentage point, said Michael McLellen, general manager of
Blytheville Ford Lincoln Mercury, in line with Federal Reserve rate
cuts.
As dealers face slowing sales, lenders have responded by
offering more attractive financing terms and longer “run rates” –
essentially granting dealers extra time to repay the principal
value of a new car. Last month GMAC extended to 91 days, from 80
days, the amount of time dealers have to sell a vehicle before
interest payments kick in. The captive also lowered its wholesale
financing rate to 0.07 per cent from 0.0825 per cent on February
1.
Floorplan providers have stiffened the dealer requirements in
one area: the age of the vehicles that qualify for floorplanning.
Ford Credit no longer finances inventory more than eight years old;
other lenders have a four year cap. The change puts pressure on
dealers to sell older inventory more rapidly.
Profiting from the fallout
While worsening credit performance has some lenders making a mad
dash for a pit stop, others are revving up to gain marketshare.
Banco Santander’s motor finance unit Drive, JP Morgan Chase
& Co’s Chase Auto Finance, Wachovia Dealer Services and World
Omni Financial Corp all have plans to capitalise on the situation
and boost originations this year, executives from each told Auto
Finance News.
Comerica Inc and SunTrust Banks have begun intentionally to
de-emphasise their indirect auto loan products. AmeriCredit Corp,
too, has started to slow originations because it is struggling with
funding issues. HSBC Holdings and Citigroup are rumoured to be
seeking buyers for their auto lending arms, further increasing the
uncertainty in the market.
However, others are gearing up their growth plans. Drive has
added about 40 sales staff in the past year, while Wachovia is
opening new offices and expanding on the origination side, said
auto unit president Tom Wolfe.
Lenders are keeping up the volume despite rising delinquencies
and losses. Many are beefing up back-end servicing efforts, adding
collectors, implementing new skiptracing technology, initiating
customer reminder calls, and fine-tuning their remarketing
procedures.
Chase Auto Finance’s parent JP Morgan Chase has been
anticipating the worsening credit outlook for some time, and has
been building those expectations into its models, said auto unit
president Marc Sheinbaum.
One factor setting apart growing lenders from their shrinking
counterparts is access to capital, with solidly liquid companies in
a better position to keep originating. Lenders that can portfolio
their loans, rather than rely solely on securitisations as a
funding vehicle, stand to benefit.
Motor Finance Issue: 41 – March 08
Published for the web: March 28 08 11:39
Last Updated: March 28 08 11:41
