In the next three years, TD Bank expects to grow its U.S. auto finance operation — built on the Chrysler Financial platform it plans to acquire — to $20 billion, putting it in the Top 20 of the nation’s largest auto financiers.
Right off the bat, TD Bank will add $6.8 billion of loans to its existing $3.3 billion U.S. portfolio. By 2013, it plans to originate $1 billion of loans per month. But where will that volume come from?
Sure, new-vehicle sales should continue to rise steadily, likely 8% to 10% per year. But if TD Bank wants to play in the prime sector, its main competitors will be captives and banks.
These days, the top 10 financiers are Ford Credit, Ally, Toyota Financial, Chase Auto Finance, Bank of America, American Honda Finance, Wells Fargo Dealer Services, NMAC, BMW Financial, and Santander Consumer USA. Captives typically have an edge over banks when it comes to financing the brand, because the OEM usually subsidizes rates.
That leaves us with Ally, Chase, BofA, and Wells Fargo. In my view, it’ll be tough to compete with the latter banks. They’ve been solidly entrenched in the market for years. Their dealers tend to have multiple credit products with them, and it will be difficult to pry dealers away. Plus, while these banks typically finance prime loans, they’re willing to move down the credit spectrum a bit when the situation warrants it. As for Ally, though it’s a relative newcomer on the non-captive front, it’s been doing steady business and gaining significant share.
Outside the Top 10 are US Bank, Fifth Third, Citizens, and SunTrust. These banks might be a good place for TD Bank to start rooting out dealers. Their portfolios are in the $5 billion to $10 billion range, about the size of TD Bank’s outstandings.
