Taking those factors together, cautious optimism -- emphasis on the "cautious" -- was the watch-phrase for major auto lenders on a CEO panel at the American Financial Services Association Vehicle Finance Conference & Exposition, held in February in conjunction with the National Automobile Dealers Association convention in Orlando.
Executives for two captive finance companies, Ford Motor Credit Co. and Nissan Motor Acceptance Corp., plus one bank-based auto lender, Wachovia Dealer Services, generally agreed that 2009 appears to have been the bottom of the current business cycle.
"We see 2009 as a real transitional year," said John Noone, Ford Credit president for global marketing and sales.
Lenders borrow, tooNotably, he said the asset-backed securities market has begun to thaw. That restores a major source of funding for auto lenders.
In securitization, lenders sell off the income from a package of loans to investors. In effect, the investors collect the money as consumers pay it back. The auto lender gets new money up front to make loans at the cost of sacrificing some of the interest it would earn if the lender collected the loans over time.
The asset-backed market essentially shut down during the credit crisis as asset values dropped, first for housing and then for used cars. The U.S. government's Term Asset-Backed Securities Loan Facility, better known as TALF, helped get that part of the credit market going again last year.
"Securitization essentially collapsed in late 2007," Noone said. "The TALF program was very helpful, [but] we've been moving away from the TALF program, and now we have completed private transactions."
For 2010, he said, Ford Credit's funding plan is "far more robust and assured."
'Strategic asset'Noone said Ford Credit's strategy has been to "stick to its knitting." He stressed that Ford Credit is a true captive finance company. "Having a captive finance company is a terrific strategic asset, one that's been reinforced in the market turmoil you're all very familiar with," he said.
That's in unspoken contrast to Ford Credit's main rivals, GMAC Financial Services and Chrysler Financial.
GMAC was driven to the brink of bankruptcy in late 2008 by losses from subprime mortgages, the falloff in the value of off-lease vehicles and a drop in its own borrowing power. With financial help from the U.S. government and in parallel with the General Motors bankruptcy reorganization last year, GMAC emerged as an independent bank holding company.
GMAC virtually quit leasing from late 2008 to the summer of 2009 and cut back on buying new retail loans from GM dealers. Meanwhile, Chrysler Financial, which was already independent of Chrysler, quit leasing entirely in August 2008.
Starting in April 2009, GMAC became the preferred lender for Chrysler, Dodge and Jeep dealers. Chrysler Financial is still in business, but its new business is shrinking, since it no longer gets incentive money from Chrysler Group to support discount deals.
Steve Lambert, CEO of Nissan Motor Acceptance, said that in retrospect his company was glad that it, like Ford Credit, passed up opportunities to diversify.
"Our focus is to support our dealers ... and [see] that Nissans get put on the road," Lambert said. "Four or five years ago, people asked us why didn't we pursue becoming a bank? Why not get in mortgages? As we stayed pretty close to our knitting, we can leverage our strengths."
Potential problemTom Wolfe, president of Wachovia Dealer Services, said his company also has been single-minded. "We wanted to be what we are: the largest used-car finance company in the country," he said.
He said his company weathered the storm with less trouble over borrowing power. Banks "do have certain advantages," he noted. Wells Fargo & Co., of San Francisco, is the parent of Wachovia Dealer Services, of Irvine, Calif.
Wolfe warned, though, that rising interest rates are a potential threat to auto sales. The effect might not be felt right away, he said, since auto lenders have become leaner and more efficient and might not have to pass along a rate increase to consumers right away.
"If we start to see interest rates move up on the vehicle side, I think it will curtail sales," he said.
"I'm not sure interest rates going up [means they] will necessarily go up for consumers right away, maybe not this year," Wolfe said. In the meantime, higher rates will make it more expensive for lenders to buy down consumer interest rates as a form of incentive, he said.
On Feb. 18, the Federal Reserve raised its discount rate, the rate at which banks can get short-term loans from Federal Reserve banks, by one-quarter point, to 0.75 percent.
At the American Financial Services Association conference, Noone of Ford Credit said there are signs the worst is over.
"There was a stress level in the dealer community, a majority of them were losing money," he said. In 2009 "they reacted as they have reacted in previous downturns -- cutting costs, including a significant lowering of floorplan costs. Cash for clunkers contributed to lowering inventory levels."
Noone said the company was "well-positioned" now. "We are beginning to move forward."
You can reach Jim Henry at firstname.lastname@example.org