Subprime lenders expect strong 2013

Three subprime auto lenders say strong growth should continue in 2013.

"We expect to be just short of doubling our number of dealers this year," said David Satterfield, co-COO for First Investors Financial Services of Houston. He said the company is adding roughly 100 dealers a month by entering new markets and by adding dealers in existing markets.

First Investors had about 1,600 dealerships signed up at the end of 2012, up from around 650 at the end of 2011, Satterfield said last week. Nearly all are franchised, new-vehicle dealerships.

Said First Investors CEO Tommy Moore Jr.: "It's easy for us to grow at this point. Our posture is we are still in growth mode" for 2013.

Analysts say investor interest in subprime auto loans is high. For example, in 2012 Aquiline Capital Partners, a New York private-equity group, bought First Investors Financial Services, and in 2011 funds affiliated with Warburg Pincus, Kohlberg Kravis Roberts & Co. and Centerbridge Partners bought 25 percent of subprime specialist Santander Consumer USA of Dallas for $1 billion.

That's making more money available to lend.

In addition, investors are buying up securities backed by subprime auto loans, according to Standard & Poor's Credit Ratings. That's one of the main ways independent, subprime auto lenders raise money to make new loans.

Said First Investors' Moore: "The capital markets are doing really well. We just closed a bond deal yesterday. The rates are really low," he said, referring to the interest rates First Investors has to pay investors.

Exeter Finance Corp. of Irving Texas, is also in growth mode, CEO Mark Floyd says.

"For 2013, we will continue to grow our business at a steady pace," he said last week. "We have pretty much completed our build-out. We are in 47 states now, so we pretty much have our footprint built out."

Floyd said Exeter now has 46 sales branches around the country with around 8,000 dealerships signed up. That's up from only 13 branches, 28 states, and around 2,000 dealerships in the fall of 2011.

Signing up more dealers and doing more business with existing dealers are on the agenda for 2013, he said.

"We were pretty busy in 2012," Floyd said. Private-equity investors led by the New York-based Blackstone Group bought Exeter in August 2011.

Jim Landy, CEO of CarFinance Capital in Irvine, Calif., says his company is now making indirect auto loans via dealerships in 13 states, since startup in May 2012. The company also does direct-to-consumer loans online.

CarFinance expects to reach another four or five states and to grow to around 2,300 dealerships in the first quarter of 2013, Landy said last week. The company had about 2,000 stores in October.

He said business -- and competition from other lenders -- can be expected to pick up in the first quarter: "Tax time, the beginning of the year, this is when the heavy volume begins, especially for nonprime."