Captive market share hits highest level since Q1 2018

Captives are regaining total auto financing market share, hitting their highest level since 2018, on the heels of increasing incentives and a pullback by banks. Captive total market share, which includes new and used loans and leases, increased 1.3 percentage points quarter over quarter and 8.8 percentage points year over year to 30.4% in Q3, surpassing credit unions and banks on a YoY basis to hold the top spot, according to Experian ’s Q3 State of the Automotive Finance Market report. Some of the largest captive lenders are benefiting from a pullback in competition from banks and an increase in incentives, Jim Spangler , vice president of U.S. sales operations at Ford Credit , told Auto Finance News . The current economic cycle combined with customer retention have also helped Ford Credit gain share, he said. Hyundai Capital America (HCA), too, has remained consistent in its lending practice, Jacob Liskin , VP of product development at HCA , told AFN . “As a captive, we support vehicle sales throughout all economic cycles, allowing us to be a consistent finance option for dealers and buyers,” Liskin said. In the third quarter, Ford Credit’s U.S. and Canada outstandings increased 1.3% sequentially and 5.4% YoY to $81.9 billion. Banks and credit unions trail captives Banks accounted for 25.2% of total market share in Q3, down 2.1 percentage points YoY, while credit unions held 23.1%, a decrease of 6.1 percentage points YoY, according to Experian. Finance companies and buy here, pay here dealers accounted for 12.5% and 8.9% of the market, respectively. “For the captives, it’s about whether they’re running incentives or not,” Melinda Zabritski , senior director of automotive financial solutions at Experian, told AFN. “When you look at the average rates by captives, you can infer there are incentives. If they are running incentives, the rates were well below what anybody else could offer in the marketplace, even the credit unions, which have historically been very low.” When the Federal Reserve began raising interest rates, credit unions were slower in raising rates and had lower rates compared with competitors, which allowed credit unions to gain market share last year, leading the industry at 29.2% of share in Q3 2022, according to Experian. “With credit union share, it’s not surprising to see that come down in some areas, because they hit such a peak last year,” Zabritski said. Captive incentives increase Increased leasing volume, also fueled by incentives, is propping up captive market share, Justin Liebstueckel , senior manager at Porsche Consulting , told AFN . “The OEMs, together with the captives, can facilitate [incentives] a lot better than a bank, specifically with regards to leasing, and that's the strong play that captives can do,” he said. “The captives are under pressure to move metal, offer competitive rates for loans, offer competitive leasing [deals] and enable affordability on the customer side.” Ford Credit has 0% finance offers for qualified buyers on the Ford Mustang Mach-E and “favorable” offers on the F-150 as a part of its yearend sales event, Ford Credit’s Spangler said. “We're starting to see more vehicle availability, and that's why you see the re-introduction of more Ford Credit-friendly programs, he said. “You see the same thing with GM Financial and Chrysler Capital and the other OEMs. When you have more inventory and you're trying to move some of the metal, you'll see some of these offers come back.” GM Financial, for example, is offering 3.9% APR for 60 months to qualified borrowers on the Chevy Equinox and 4.1% on a 60-month term to qualified borrowers on the Chevy Blazer. Chrysler Capital is offering 2.9% APR on a 36-month loan on the Jeep Grand Cherokee and 2.9% on a 48-month loan for the Jeep Compass. That’s compared with an average national interest rate of 8.3% for a 48-month loan , according to data from the Board of Governors of the Federal Reserve System. “In a higher-rate environment, the types of loan and lease offers we develop with the OEM become very important for vehicle affordability,” HCA's Liskin said. “As inventories are increasing from historical lows, there is increasing opportunity to develop attractive loan and lease offers to sell those vehicles.” Ford Credit, for one, began offering an option on Ford’s website this year that allows a consumer to prequalify for a loan with no impact on their credit score, Spangler said. “A customer can give us five lines of information [for a soft credit pull],” Spangler said. “It gives [the consumer] a hard offer to give them the confidence to go buy a Ford vehicle.” Incentives aren't the only thing that is helping captives increase market share. Ford Credit has also coached and trained its sales team through “performance consulting,” where they train representatives who are underperforming compared to peer groups, he said. The lender has also emphasized working with the sales teams to increase finance penetration. Captives lead new, credit unions lead used In the new-vehicle market, captive market share reached 59.2%, an increase of 14.5 percentage points YoY, according to Experian. Banks and credit unions followed, accounting for 22.2% and 13.2% of market share, respectively. For used vehicles, credit unions continued to lead, controlling 30.3% of share in Q3, a decrease of 1.7 percentage points YoY, mainly driven by the lower interest rates they offer, Zabritski said. Banks held 27.3% of used vehicle financing, a decrease of 0.9 percentage points YoY, while finance companies held 18.1%, an increase of 0.8 percentage points YoY. Banks could reclaim market share after the Federal Reserve begins to drop interest rates, lowering the cost of funds, Porsche Consulting’s Liebstueckel said. The shift in total market share comes as the percentage of new and used vehicles financed declined during the third quarter. The percentage of new vehicles financed came in at 79.1% in Q3, down compared with 82.3% during the same period last year, while used came in at 37.4% in Q3, down compared with 41.2% in Q3 2022, according to Experian.

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