The auto finance sector is getting “tight” and the pull back in volume that major banks enacted late last year is “warranted,” William Strauss, senior economist and economic adviser for the Federal Reserve Bank of Chicago, said during a presentation at the Auto Finance Risk and Compliance Summit in May.
The mentality expressed by major bank auto lenders, such as Wells Fargo Dealer Services, Chase Auto Finance, and Capital One Auto Finance is that they no longer are originating “volume for volume’s sake” and are seeking more profitable contracts, each bank said during first quarter earnings calls.
However, the rest of the economy is showing signs of growth: unemployment is falling, gas prices remain affordable, and interest rates are low, Strauss said. Still, it’s not good to push things too far.
“The pull back that we’ve seen might be a bit warranted because the last thing you want to do is push an industry that might be tapering off, and push sales even further,” Strauss said. “That might undercut profitability.”
Pushing auto finance too far beyond its limits could lead to another down period like the industry experience in the 1990s and again in 2007 — “Where we had the largest selling period [of the time] and every single one of those years the industry lost money.”
