Some banks are backing off the accelerator on auto loans for 2014 because of heavier competition and a desire to protect margins.
At the same time, several banks posted substantial growth in originations for the fourth quarter and the full year of 2013.
Notably, Wells Fargo Dealer Services said last week it originated a record $27.6 billion in auto loans in 2013, including a hefty 26 percent increase in loans to $6.8 billion in the fourth quarter.
Meanwhile, Capital One Auto Finance posted a 24 percent increase in originations in the fourth quarter, to $4.3 billion, and Chase Auto Finance said originations rose 16 percent in the quarter to $6.4 billion.
Wells Fargo is the perennial industry leader in used-car loans. But it does a robust business in new-vehicle loans, too, usually ranking among the top 10 banks, Experian Automotive data show.
Wells Fargo's preferred-lender relationship with General Motors has boosted the bank's new-car business. GM provides incentives for loans originated at its dealerships through Wells Fargo. The relationship started in 2011 as a pilot program on the West Coast and expanded in 2012 to include GM's Western and South Central regions.
"Our auto business had an outstanding year with record originations in 2013, up 26 percent from a year ago," Wells Fargo CFO Tim Sloan said during a conference call last week. "This strong growth reflects the increase in sales and the benefit of our partnership with GM."
U.S. sales of new light vehicles are forecast to rise to 16.1 million to 16.4 million units in 2014 from 15.6 million units in 2013.
With sharper competition in 2013 and more of the same expected in 2014, some big auto lenders said they still expect to grow, but they prefer to pass up some volume rather than cut margins to chase market share.
"It has been competitive the last couple of years, and we think it will stay competitive in 2014," said Huntington Bank Chairman Steve Steinour said during a conference call last week. "We are focused on returns and not on market share or aggregate volume. We've been in this a long time, and we were strong through the downturn. We've been able to generate growth and we had a record year in 2013. But we did not keep pace with the growth in new-car sales."
Huntington, based in Columbus, Ohio, makes auto loans in 17 states from the Midwest to the Northeast. The bank had record auto loan originations of $4.2 billion in 2013, an increase of about 5 percent from 2012. U.S. light-vehicle sales increased 8 percent in 2013 to about 15.6 million.
Another big regional auto lender, BB&T Corp. in Winston-Salem, N.C., said it would stay disciplined on auto loans in 2014.
"We have not changed our underwriting so that will naturally impact our volume" if others choose to relax their underwriting standards, thus reaping more business, said Clarke Starnes, chief risk officer and senior executive vice president for BB&T, according to a transcript of a conference call last week posted on seekingalpha.com.
BB&T said its auto loan originations in the fourth quarter increased 15 percent from the year-earlier period to about $1.2 billion.
BB&T buys auto loans in 11 Southeast and Mid-Atlantic states and in the Washington, D.C., metro area. It also originates subprime auto loans nationwide through its Regional Acceptance Corp. unit.
Tougher going in 2014
Capital One CEO Richard Fairbank said competition is driving down margins, especially on prime-risk loans.
"So what's happened competitively in the auto business is just a regression back toward the mean, from a once-in-a-lifetime kind of situation," he said in a conference call last week.
He explained that the once-in-a-lifetime situation occurred immediately after the recession, when there were fewer competitors in auto lending and record-low delinquencies and loan losses because lenders had tightened approval standards on loans made during the downturn. Those favorable trends caused "a lot of players" to jump back into auto lending, he said.
Fairbank said delinquencies and loan losses are expected to increase, but it's more a case of going back to normal from record lows.
"The industry continues to normalize to more business-as-usual underwriting, following significant tightening during the Great Recession. And we expect some softening in historically high used-car auction values," he said. "As a result, we expect auto finance credit losses will continue to gradually increase from the historic lows of the past few years but will remain comfortably within ranges that support an attractive and resilient business."
You can reach Jim Henry at firstname.lastname@example.org