The lender lineup: How many is too many?

F&I Director Danny Cox is paring the number of lenders Ken Garff Automotive Group uses from 68 last year to about 20. Eight will be large banks and the rest will be local or regional lenders. The group has more than 40 stores in six states.
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Ken Garff Automotive Group of Salt Lake City is expanding. Garff Automotive, already the 11th-largest U.S. dealership group, added six stores this year and plans to add four next year.

But at the same time, it is cutting back on the number of lenders it uses to finance its customers' loans.

The group is culling the number of lenders to about 20, down from 68 in 2012, says Danny Cox, the group's F&I director. He says it will be easier and more efficient for Garff Automotive to work with a smaller number of bank representatives.

Garff Automotive is addressing a question facing dealerships across the country: How many retail lenders should a dealership have?

The issue is complicated by memories of the recession, when many dealerships found themselves abandoned by longtime financing partners. Some dealers today believe they should have strong, close ties to a handful of lenders, while others prefer to spread their business around in the hope that they always will have lenders available no matter what the future brings.

Steiskal: Stores need nine to 11 active lenders.

'Revolving door'


"What we're finding with roughly 70 lenders is it can be a revolving door of reps coming in, and they're all asking the same thing: 'We want more business. How do we get more business?'" Cox says. "We're in the process of paring it down just to be able to manage it from a self-preservation standpoint."

The average dealer used 9.5 lenders during the third quarter, according to a Dealertrack Technologies study of its own network of dealerships. That figure has rebounded from a low of 6.9 lenders per dealer during the heart of the recession in 2009 but remains below the prerecession mark of 10 lenders per dealer set in the first quarter of 2008.

The growth is attributable to an increase in lenders in the market since the end of the recession and more accessible credit, says Allan Steiskal, Dealertrack's general manager for sales and F&I solutions. "There is more money, and there are more lenders," he says.

Steiskal says he expects the figure to continue to grow as the economic recovery continues. The average dealer should have nine to 11 active lender relationships, he says.

"You need enough lenders to cover the full credit spectrum and you need a little bit of competition," Steiskal says.

'That well will dry up'


At Serpentini Auto Group in northeast Ohio, Finance Director Nate Gault warns that the trauma of the recession could happen again.

During the depths of the recession, many banks left the market and burned dealers who did not spread out their business, Gault says.

"Eventually that well will dry up," he says. "I'm a big, big believer in spreading out the business as much as you can."

Serpentini uses about 30 lenders to service customers at its three stores, which sell Chevrolet and Buick vehicles near Cleveland and Akron.

Gault says the dealership uses about 20 lenders for prime loans. Because of increasing competition, the lenders have been willing to take customers with lower credit scores than they would have before the recession. He also noted that lenders are developing niches in different types of loans.

"It's back and bigger than it ever was, especially in the secondary market," he says. "I have banks who specialize in open Chapter 7s," individuals who currently are in Bankruptcy Court.

Gault says he will meet with lenders for the group's dealerships at least once every 60 days to determine how the parties can improve their relationship.

"I want to know how the portfolio is doing," Gault says. "It has to be a win-win for both."

Big, local


At Garff Automotive in Utah, Cox knows how he wants the surviving 20 lenders split. About eight will be larger banks. The rest will be local or regional lenders that would work with individual dealerships.

Currently, about 70 percent of Garff Automotive loans are financed through large national banks such as Wells Fargo, TD Auto Finance and Capital One. But by maintaining a relationship with smaller lenders such as credit unions, the dealership group is able to take advantage of market niches, Cox says.

Consider America First Credit Union of Riverdale, Utah. With more than 618,000 members, it is the seventh-largest credit union in the United States in terms of membership. It also is the largest credit union in the Beehive State.

"Utah is a big credit union state," Cox says. "Those are big players in the Utah market."

To take advantage of that market, Garff Automotive does joint marketing with America First.

The credit union's members get preferred loan rates at Garff Automotive dealerships, Cox says, adding that the dealer also gives America First priority to buy the loans of America First customers who trade in vehicles.

As Garff Automotive conducts its review of existing lenders, Cox emphasized that part of its evaluation process will include discussions with the banks to understand the types of loans they are looking for in order to direct customers to lenders that fit their needs.

"The conversation can't be one-sided," Cox says. "It can't all be about 'What can you do for our group?' I have to understand from a high level what the lender wants, what their long-term objectives are, what space they want to play in."

You can reach Joseph Lichterman at jlichterman@crain.com.

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