One quarter into 2014, auto finance originations are on the rise.
Huntington Bank posted its best ever first quarter, according to Executive Vice President Rich Porrello, with its $6.8 billion portfolio up 39% from last year. PNC Financial Services Group Inc. closed out the first quarter with $10.9 billion of loans outstanding, up 25.3% year over year. The loan portfolio at Capital One Financial Corp. grew 21.5% to $33.9 billion through March.
The increased originations have lured more lenders to the space, which has driven down margins. “It’s a pretty competitive
environment out there,” said Mohak Rao, a Fitch Ratings analyst who concentrates on the auto finance space. Rao has also noticed growth in the leasing segment, a trend he expects to continue for the near term.
Will the competitiveness in the prime space lead to a push down the credit spectrum? Yes and no, Rao said.
Big banks may make a play in the subprime space. “Banks are being very competitive just because the interest rates are so low,” Rao said.
As for captives, it’s unlikely they will move further into the subprime space than they have in recent years. “Captives have always played in that area, but at a very low level,” he said. “I don’t expect that to go up.”
Meanwhile, growth in the auto finance space hinges on the health of automakers. The first quarter has been full of good signs for that side of the business as well, said Stephen Brown, Rao’s Fitch colleague who focuses on the auto manufacturing space. “Overall, it looks like we’re still seeing sales growth in North America, despite the fact that we saw a couple of down months,” he said.
Generally, spring is a big selling season for cars as the weather is warmer, meaning that the second quarter could spur another increase. Total automobile sales for 2014 are projected to reach 16.2 million units, the highest since before the credit crisis.