Independent dealers eye new lending partners as Wells Fargo pulls back

Wells Fargo ’s move to halt contract funding from a majority of the independent auto dealers on its network is spurring dealers to find new lender partners to fill the gap, Larry Laskowski, executive director of Independent Automobile Dealers Association of California , told Auto Finance News . The San Francisco-based bank has pulled back on riskier lending practices amid the coronavirus crisis, including home equity lines of credit and subprime auto loans, which are a large percentage of contracts sent to the lender by independent dealers. “Wells Fargo offers a lot of credit products to auto dealers across the country, and them pulling back is not going to be good for small independent auto dealers,” Laskowski said. “It's going to adversely affect the dealers and customers alike.” Wells Fargo’s Independent dealer network accounts for 10% of the lender’s 11,000 dealers, Natalie Brown, a spokeswoman for the bank’s auto division, confirmed to AFN . Nearly 1,100 independent auto dealerships will be affected by this decision, according to Laskowski. Low availability of financing for independent dealers will drive their sales down because they tend toward subprime borrowers, Laskowski said. Dealers now must look for alternative lenders, which could drive up loan costs for consumers, he added. Although Wells Fargo has stated that any independent auto dealer with longstanding relationships with Wells Fargo will continue to see financing from the bank, many dealers have been left stranded, Laskowski said. Dealerships like Executive Auto Centre in Fresno, Calif., have been working with Wells Fargo for the past 25 years, but were “shunned by the bank without a warning,” said Dror Geron, that dealership’s president. “My portfolio with Wells was pretty strong, with very low delinquencies,” Geron said, adding, “This decision was particularly painful, especially during COVID times.” He noted that a majority of the dealership’s customers have a credit score higher than 620, and average $25,000 to $30,000 in financing. Geron expects business to start running as normal when the economy opens but is struggling to find a lender offering similar services and rates as Wells Fargo. The company has partnered up with Balboa Thrift and Loans, a local credit union in California to fill in Wells Fargo’s shoes. “They're more of a regional lender, whereas Wells was a national lender,” Geron said. “A part of our business here at Executive Auto Center is we ship vehicles out of California and a regional lender puts restrictions on us.” While rising unemployment rates could lead to a potential spike in delinquency rates, similar to the 2008 credit crisis, Wells Fargo is looking to tighten its credit underwriting standards. As such, many dealers are struggling to find new lenders in this volatile economy. “We got a letter from Wells Fargo last week saying they will not take our loans anymore after working together for 10 years,” said Mordechin Goldstein, financial manager at Auto City International , an independent auto dealership in Brooklyn, N.Y. “The market is about to open after the lockdown, and we don’t have a lender as good as Wells Fargo.” Auto City International had been sending nearly 40 loan applications to Wells Fargo per month with an average loan size of $15,000 to $20,000, Goldstein said. The dealership is now looking for an alternative lender and expects the financing to be costlier than before. Given the current economic situation, Wells Fargo is going to keep a close eye on the evolving market conditions before expanding its offering again, according to Wells Fargo’s Brown. “We will continue to monitor the economic landscape and make decisions according to market conditions, and how we think we can best serve the industry and consumers,” she said. --Additional reporting by Garret Reich Auto Finance Summit, the premier industry event, returns October 20-22, 2020, as a virtual experience. The virtual experience will offer the same quality networking and education as past events, all through an online platform. To learn more about the 2020 event and register, visit www.AutoFinanceSummit.com .

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