Automakers in U.S. driving banks from buoyant new car market

Mon Jun 16, 2014 1:21am EDT
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By David Henry, Bernie Woodall and Peter Rudegeair

NEW YORK/DETROIT (Reuters) - U.S. banks looking to get in on a booming market for financing new-car sales have run into a formidable competitor: the auto manufacturers themselves.

Financing arms of car companies, including Toyota Motor Corp, Honda Motor Co and Ford Motor Co, made half of all new U.S. car loans in the first quarter, up from 37 percent a year earlier and the largest percentage of the market in four years, according to credit data firm Experian.

These companies also write the vast majority of leases, which contributed a record 26 percent of new car sales in the quarter, up from 23 percent last year and 20 percent in 2012.

The financing arms are providing subsidies from the manufacturers, lowering monthly payments and extending loan terms to make it easier for buyers to drive away in a shiny, new vehicle. As a result, major banks are increasingly moving into riskier parts of the market to make loans.

US Bancorp, for example, for the first time ever decided to start financing used cars, an area of the market that the automakers' finance companies have little interest in. It also started offering loans to less creditworthy borrowers.

And Wells Fargo & Co has been leveraging off a nationwide deal with General Motors Co to provide loans subsidized by the No. 1 U.S. automaker. Wells sees this as a way to gain more of the used car loan business at GM dealerships.

The aggressive push by car companies is beginning to raise questions among industry analysts and consultants about whether it is sustainable.

If interest rates rise, the automakers could find the incentives too costly unless they are prepared to take a hit to profits - with any pullback in the deals being offered customers running the risk of hurting demand. And, if used car prices weaken, the financing units could be hit with losses on vehicles coming back from leases and repossessions.   Continued...

A Honda new car lot shows vehicles available for 0.9 per cent financing in Rockville, Maryland June 12, 2014. REUTERS/Gary Cameron