Margin Pressure Threatens New Loan Growth

Loosening credit and increased competition are putting the squeeze on profits.

That was one of the core findings in the Auto Finance Forecast Spring 2011, an exclusive survey conducted by Auto Finance News and sister web site AutoFinanceNews.net. The Auto Finance Forecast gauges activities and sentiments in the automotive lending and leasing market.

With finance companies and banks entering ― or reentering ― the market, the next 12 months will be marked by “a no-holds-barred dogfight for assets that is placing extreme pressure on net interest margin,” wrote one bank respondent.

Specifically, more than half of survey respondents expect net interest margins to remain flat until mid-2012. In the winter survey, 30% of respondents predicted flat profits, while another 35% anticipated as much as 10% growth in margins. (In the spring survey, 20.7% indicated 1%-to-10% growth in profit margins.)

Financiers expect “stronger market demand with increased competition,” which will translate to “higher volumes with lower margins,” wrote another lender.

Put simply: “Too many lenders chasing too few deals,” in the words of a survey respondent.

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