Capital One Financial Corp.‘s auto origination volume rose 11% to $29.3 billion last year, although Chief Executive Richard Fairbank expressed concerns about “increasing competitive intensity” that could hinder growth, during the company’s fourth-quarter earnings call.
“Over the last few years, there was a pullback of a couple of competitors that we took advantage of,” Fairbank said. “Both of them have certainly returned and are pretty aggressive players in the space.”
On top of that, keeping dealers loyal is another competitive hurdle, Fairbank noted. “When the dealer sees something from a particular lender, like a looser credit policy or different pricing, the dealer can drive a significant amount of business,” he explained. “We always caution how much that factor can create adverse selection if people are loosening their credit policies.”
Still, full-year auto outstandings increased 7% to $60.4 billion in 2019.
“It’s a little bit unusual that, at the same time we are saying competition is increasing, we are also saying our originations — and even our book of the business overall — are actually increasing,” Fairbank said. “That is something that may be a little bit anomalous.”
Meanwhile, Capital One’s auto loan delinquency rates dropped 7 basis points (bps) to 6.88% at year end 2019. The auto charge off rate improved, too, declining 13 bps to 1.51% of the portfolio. Fairbank expects that rate to gradually increase as the cycle plays out.
Moving forward, Capital One is focusing on digital innovation as the “key driver of our momentum in the auto business,” Fairbank said. “We invest heavily in technology in this business, and every quarter we are out there to get whatever opportunity we can have consistent with our own standards and with a very, very watchful eye on the competition.”
Technology investments on the lender’s radar include “real-time” and “big–data-driven” underwriting, Fairbank noted. Additionally, Capital One has its eye on “the creation of products for customers and dealers that are very sophisticated, tech-driven products with real-time mass scoring of any car anywhere across the nation,” he added.
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