F&I options expand as banks return to lending

Finance managers may start hearing from banks they haven't heard from in a while. That's because some banks that got out of auto loans two years ago are looking to get back in, says Mark Pregmon, chairman of the auto finance committee for the Consumer Bankers Association. Auto finance is rebounding and looking more promising than some other sectors, including real estate loans, he says.

Pregmon's full-time job is executive vice president of consumer banking operations at SunTrust Banks Inc. in Atlanta. He spoke with Special Correspondent Jim Henry last week following a CBA conference in Hollywood, Fla.

Is auto financing really more available now or does it just seem that way compared with recent lows.

Things that make lenders optimistic about the [auto] finance business are that used-car values are at an all-time high. Also, new cars are picking up to 12 million, 12.5 million [annual sales rate] from 9 million, 10 million last year. When you look at asset classes for a bank, small business is not there; they're holding back until signs of recovery get better. Housing is still the wild card.

So that leaves automotive?

Banks that exited two years ago are trying to get back in. The auto business diversifies us in that real estate portfolio. Losses [on auto loans] are going down. So you've got both top-line and bottom-line growth, which is nice.

Meanwhile, statistics show that captive finance companies are getting back some of the share they lost in late 2008 and early 2009.

The liquidity crisis that happened then to captives was because banks can raise deposits [to be used to originate new auto loans], and the captives can't. Their cost of funds is higher, and they couldn't raise money through asset-backed sales. It got very cost-prohibitive. The captives, of course, remained in the business, but they were not there like they had been. On the banking side, a lot of smaller players exited. The Chases, the SunTrusts, others in the top 10 [banks] were able to stick it out, and the top 10 gained share.

What about GMAC Financial Services? Technically it's a bank, too. But do other banks treat it like a bank?

They're still operating like a captive. Yes, they are a bank, but dealers think of them like a captive. GM and Chrysler dealers do. I compete with them, and I feel like they're a captive.

What still makes GMAC a captive?

They have contractual agreements [to get incentives from GM and Chrysler]. That, I can't compete against. I can't compete against 1.9 percent [loans]. The cost of lending is greater than that. They couldn't do that without GM. It's still a marketing arm.

The proposed Consumer Financial Protection Agency is probably at the top of the CBA's agenda in Washington. True?

We do know it's all going to be about the safety and soundness of lenders. The thing is there are already all these different government agencies that regulate different aspects of banking, and what we don't know is if this new [consumer protection] agency, or bureau, is simply going to be another body enforcing the rules that are already in place or whether it's going to be creating a new set of rules on top of the rules we already have, and how they're going to coordinate if the rules conflict. And we all know how well government agencies coordinate with each other. They've [the Consumer Financial Protection Agency] got fairly broad powers in this thing.

What about dealers?

The thing about CFPB [Consumer Financial Protection Bureau] for dealers is: Are the dealers in, or are they out? It's the uncertainty; there's not much to say around solutions [until we know more]. We can't obsess about it.

So there's no lobbying, and no protests, until everybody knows the details?

There's a lot of jockeying around. We know lending is going to be crucial to the present recovery. It's going to slow things down if now there's another regulator.
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