Lenders to dealers: We'll take the deal

After the collapse of credit in the recession, lenders have returned strongly to financing auto sales. Car dealers are finding lenders eager to finance their deals, including subprime loans.

In fact, so many auto lenders are trying to sign up to buy indirect loans from Findlay Automotive Group in Henderson, Nev., that it's almost a nuisance.

"Apparently, their pockets are full of cash," says Tyler Corder, CFO of the 27-store group. "We've got lenders lined up to sell you on new dealer agreements. It's almost distracting. They come in here want-ing you to sign up. Frankly, I'm not interested in signing up every new lender that comes along."

After the financial collapse of 2008, lending dried up and credit standards tightened. Buyers couldn't be financed, so dealers lost deals.

Now, low rates for losses and delinquencies gradually have convinced auto lenders that it's safe to open the spigot. Wall Street analysts say investors are lining up to pump funds into the auto lenders, which means lenders have plenty of money to lend.

The result is a return almost to prerecession levels of credit availability for prime consumers. Credit availability for subprime customers is way up but still not at prerecession levels.

Says Bernard Silverstone, COO of Ford Motor Credit Co.: "The credit environment is pretty good right now. Most companies are reporting historically low credit losses. Certainly, we're in the same position. We're pleased with that."

In the first half of this year, Ford Credit's U.S. contract volume increased 15 percent to 481,000 units, including loans and leases on new and used vehicles.

Ford Credit said that in the second quarter its percent of losses for bad loans out of total receivables was a record low of only 0.08 percent.

On the subprime side, GM Financial reported that its loan and lease volume rose 16 percent in the first half to about $2.9 billion. Its losses dropped to only 2 percent of receivables in the first half, from 3.2 percent a year ago.

GM Financial CEO Dan Berce said the company had its "all-time best credit performance" in the second quarter of 2012, with losses of only 1.5 percent.

Berce: Touts GM Financial’s second quarter

Fewer deadbeats

When the recession began, auto lenders achieved lower losses by imposing tighter lending standards. And today people are doing a better job of paying their bills on time, according to credit bureau data.

Through the first quarter of 2012, the most recent quarter available, auto loan delinquencies were below the year-ago quarter for 10 quarters in a row, according to Experian Automotive.

"We are seeing recovery in the availability of credit for our customers," said Chris Holzshu, CFO of Lithia Motors Inc., in a conference call last month. "New banks are entering the retail automotive finance sector, and competition for retail contracts remains healthy."

Experian Automotive says auto lenders have been buying deeper for a couple of years now.

The average credit score on new-car loans originated in the first quarter of 2012 was 760, down from 766 a year earlier and 776 the year before that.

According to Experian, the prime category starts at a credit score of 680, using the company's ScorexPlus scale. The prerecession low for the average new-vehicle loan credit score was 749 in the fourth quarter of 2007, Experian said.

Some lenders have not adjusted since the initial tightening. "We have not changed our credit criteria," said George Borst, CEO of Toyota Financial Services. "We are not expanding in subprime or nonprime. We made adjustments in 2007 and we haven't wavered from that."

Take a number

DealerTrack Inc. reports that the average number of active lenders per dealership hasn't quite recovered to prerecession levels.

The average number of active lenders per dealership -- that is, lenders to which dealerships have sent applications and booked loans in a given period -- was 9.5 in the second quarter of 2012, DealerTrack says. That's up from a low of 6.9 in the second quarter of 2009. In the loose-credit atmosphere of 2007, the average was almost 12.

Dealers had complained that subprime auto lending was slow to come back, but now subprime also is rebounding strongly.

Joe Papa, business manager at Brown's Ford of Johnstown, N.Y., said credit availability has been good for the past year, but even more so in the past six months, particularly in subprime.

"In the last six months, I've seen a tremendous uptick in the lenders," he said. The lenders are being more aggressive and are looking for ways to make a deal. They're calling back to follow up. I tell you, they're taking just about anybody."

Analysts said subprime lenders are raising billions of dollars this year, which they will use to make more loans. According to Standard & Poor's Ratings Services, through July 2012 subprime lenders sold $10.7 billion worth of auto loans to investors in the form of asset-backed securities, up 43 percent from the same period a year earlier.

Despite the increase, subprime auto lenders are still raising much less than before the recession, according to John McElravey, an analyst at Wells Fargo Securities.

"It is a robust recovery, but the trough was so low, and the tightening of credit standards was so severe, on a relative basis things look easy in a way. But I'm not sure that's the case," McElravey said. "It's more of a recovery to normal times."

Amy Wilson, Mark Rechtin and Bradford Wernle contributed to this report