Big Wheels 2014

Bolstered by nearly 30% growth in originations, auto finance outstandings closed out 2013 at a record $822.1 billion. The previous record ― $815.8 billion ― was notched in 2007. Loan and lease outstandings last year among the top 100 financiers grew at a 14% clip, more than double the increase in 2012, according to the annual Auto Finance Big Wheels ranking of car lenders and lessors. The boost was driven by easy access to capital, strong loan and lease performance, and pent-up demand for vehicles. Overall, loan and lease originations grew at a 28.3% clip last year. In all, the top 100 financiers originated $447.4 billion of receivables, 1.5% shy of the record level reached in 2007. Leases inched higher last year, accounting for 20.4% of receivables outstanding, compared with 19% in the year prior. Leases had been hovering below the 20% mark since 2008. The increase in lending activity comes amid higher vehicle sales. New-car sales climbed 7.8% to 15.6 million units in 2013, while used-car sales grew 3.7% to 42 million units. Demand has been driven, in part, by an aging vehicle fleet. For the past two years, the average age of vehicles in operation has exceeded 11 years old. Overall, 95 of the ranked financiers recorded portfolio increases last year, compared with 88 in the prior year. Of the five lenders whose portfolios shrank, only two posted double-digit drops. There were 41 credit unions represented in the top 100, followed by 37 banks, 13 captives, and nine consumer finance companies. Banks claimed the largest marketshare among auto financiers last year, accounting for 51.6% of all loans and leases held in portfolio. Captives cornered 40.3% of the auto finance market, followed by credit unions with 6.5% and independent finance companies with 1.5%. Though the independent finance companies represented the smallest share of the top-100 market, they grew at the fastest clip. Loans and leases outstanding at these independents, which are largely nonprime players, skyrocketed 61.5% last year. A handful of lenders joined the ranks of the nation’s top financiers for the first time. Newcomers to the list include two independent finance companies ― CarFinance Capital LLC (#77; $798 million portfolio) and Prestige Financial Services Inc. (#83; $728.6 million) ― plus bank subsidiary CRB Auto Inc. (#88; $692 million). For the second straight year, Ally Financial Inc. topped the list, outpacing rival Toyota Motor Credit Corp. in loans and leases outstanding. Ally ended the year with a $74.1 billion portfolio, 1.2% higher than Toyota’s $73.2 billion portfolio. The reverse dynamic held true on originations, though. Toyota’s origination volume climbed 17.9% to $40.2 billion, while Ally’s fell 3.6% to $37.3 billion. Chase Auto Finance , Wells Fargo Dealer Services Inc. , and American Honda Finance Corp. rounded out the top five by outstandings, each with portfolios exceeding $50 billion.

On the origination front, Wells, Chase Auto, and Ford Credit followed Toyota and Ally with more than $25 billion of fresh loans and leases on the books last year. OUTLOOK POSITIVE FOR ORIGINATIONS IN 2014 AND BEYOND What is the outlook for the auto finance industry? Mainly good. While there are positive economic indicators, stiff competition and a tough regulatory environment point to tempered growth on the auto finance horizon. Light-vehicle sales figures are expected to climb about 5% this year, the slowest growth rate since 2009. As such, auto origination and portfolio totals should continue to rise, albeit at a slower pace. So far this year, first-quarter sales totaled 3.7 million units, flat with the level recorded through March 2013. Tough competition and low profit margins may prompt financiers to pare back prime loan volume, but the leasing and nonprime sectors is set to grow into 2015. Meanwhile, loan performance continues to remain strong. In 2013, direct auto loan delinquency slid to 0.79%, marking two straight years below a 1% delinquency rate. That is unprecedented. Indirect loan delinquency rates fell in 2013, too, closing out the year at 1.62%. That is the rate’s lowest level since yearend 2004. But that was then – now the situation looks poised to change. After years at historic lows, delinquency levels will likely start to pick up this year, spurring financiers to tighten the lending reins. It is difficult to determine just how significantly this will influence originations, although our suspicion is that competition will keep the risk managers somewhat at bay. Though the outlook for the sector is generally positive, portfolio growth will likely slow this year. Even so, auto finance originations are on pace to reach record levels. When we take it all under consideration, and recognize that new-vehicle sales should hit about 16.3 million, we put loan and lease originations on track for $490.8 billion for the Top 100 auto finance companies, which encompass the vast majority of the market. This compares to overall loan and lease originations of $447.4 billion in 2013, which grew at a 28.3% clip last year. The 2013 total was 1.5% shy of the record level of originations reached in 2007. According to our forecast, the 2007 record will fall in 2014.

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