Earlier this week, independent auto finance company AFC HoldCo LLC announced that it would shut its doors because of the downturn in the auto market.
Japanese investment firm Mitsui & Co. bought the Sunrise, Fla.-based lender in 2007 for $63 million, with the hopes that the auto finance business would expand. AFC HoldCo had been created from the merger of Affiliated Financial Corp. and BayQuest Capital Corp. — which retained a combined 12.5% stake — and was doing business with 4,000 franchise and independent dealers in 40 states.
Yet instead of growing, the industry contracted, to what Mitsui deemed a point of no return.
“We cannot foresee a recovery in the auto finance business,” Mitsui said in a statement announcing the subsidiary’s liquidation.
It seems to me that Mitsui’s timing is off. The past two years were the industry’s nadir. By now, things are on the upswing.
It still comes down to the fact how to keep your business profitable. Econimic conditions drive your treatment somewhat, but if the LTV’s are done the right way at the origination, the consumer has vested interest to keep paying and not loose the vehicle. At any time you do not want to let the customer add wear and tear if you have minimized you potential loss the right way.
This is interesting news, but not quite in line with the market at all. If anything, this company could have been positioned to capitalize on the existing market now, if not the near future. Clearly, a lack of understanding the auto finance market and experience, from a Management perspective.
The people that ran AFC are terrific industry professional. Mitsui had very little interest in the auto finance industry. The purchase was more geared towards their CYCLE product offerings. They bought on the high and cannot see past the loss, which is understandable considering it is probably better for them to take a large write down than make a turn around effort in an industry they know very little about.
Thanks for that info, Sean.