Ally Financial Inc. is opening a $750 million line of credit to make loans through DriveTime Automotive’s network of used car dealers, the companies announced in a joint press release Wednesday.
Following a year in which DriveTime saw losses surge 387%, the agreement is meant to help the company extend more into near-prime segments, according to the release.
DriveTime posted losses of $23.9 million in the third quarter 2017 compared with $4.9 million during the same period the year prior, according to a December S&P report. DriveTime historically lends to borrowers with Fico scores between 450 and 550 and is in the process of tightening its credit underwriting standards to address the flood of losses, according to Kroll Bond Rating Agency’s report of the company’s 2017-4 securitization.
“While we have taken steps to continue to strengthen our originations as part of our normal underwriting review process, our performance in the third quarter of 2017 was primarily a reflection of normal seasonality and an increase to our provision because of both actual and anticipated losses related to Hurricane’s Harvey and Irma,” Kurt Wood, chief financial officer of DriveTime, told Auto Finance News in a statement today.
In December, DriveTime also began the search for a new chief executive after entering into an agreement with founder Ray Fidel.
“We talked and decided that it seemed like the right time to make a change [in the chief executive position],” Jon Ehlinger, executive vice president and general counsel at DriveTime, told Auto Finance News earlier this month prior to the announcement of the partnership.
For Ally, this deal “complements our well-established indirect model,” and frees up DriveTime’s capital to focus on other aspects of the business, Tim Russi, president of auto finance at Ally, said in the release.
“This expansion of our current model leverages our cutting-edge connected digital retailing, adding thousands of competitively priced, low mileage vehicles for our customers, and re-imagining the entire buying experience to make all phases as easy as possible for our customers,” Scott Worthington, vice president of retail sales and marketing, told AFN in a statement.
The credit line will last for 12 months and allow DriveTime to “grow originations, diversify our retail and finance platforms. and enter into a new consumer segment,” Wood said in the release.
In 2014 DriveTime agreed to pay $8 million to settle Consumer Financial Protection Bureau claims that its collection agents used abusive tactics toward the 46% of customers who were delinquent at the time. The company neither admitted nor denied wrongdoing and agreed to make changes in its operations. Additionally, in 2014, Carvana, a public company which operates in 27 cities, was spun off from DriveTime.
