Are Private Equity Investors Still Jazzed About Auto Finance?

Since the credit crisis, several private equity investors have jumped into the auto finance space. But how hot are private equity-types for auto finance assets today?

The upshot: they are interested — if the venture is compelling enough. And that’s a big “if.”

We spoke to the head of auto finance investments at one of the nation’s largest private equity firms (no names, please) and he told us that the firm is perfectly content and happy with growing its current investment, a subprime lender. This PE firm is looking to bump up its investment’s originations to more than $1 billion this year, which would be a significant increase from its 2012 lending volume.

But that doesn’t mean the private equity firm will not look around at other opportunities; it does. For the first to acquire another auto finance company, however, there needs to be something especially compelling at play — mainly more ambition on the part of the PE firm and the ability to grow and scale the acquisition in an increasingly hot market. It also means the venture must have a stellar management team with a proven track record.

Nonetheless, our PE friend said the appeal of subprime is simple and straightforward. Subprime auto is a product that got decimated during the crisis, not because of the assets, but because the big banks that engaged in subprime ran for the hills and stopped lending, despite resilient consumer demand. Immediately post-crisis, competition in subprime auto was muted, paving the way for this firm’s investment opportunity to take off.