Q&A

Increase in loan delinquencies return to 'norm,' Capital One exec says

Yajnik: "Now as we come out of the downturn, conditions are becoming more normal. Some consumers are coming to the high side of what they should be borrowing."
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Recent industry talk about higher auto loan delinquencies has caused concern among Wall Street analysts that some banks might pull back from auto lending.

But Sanjiv Yajnik, president of financial services at Capital One Auto Finance, says the company is as enthusiastic as ever about financing auto buyers.

Yajnik calls the recent increase in delinquencies a return to the "norm." He says pent-up demand will keep auto loans growing, and competition among lenders will keep credit available.

In the fourth quarter, Capital One's auto loan originations were $4.3 billion, up 24 percent from the year-earlier period. In the quarter, Capital One was No. 5 in new and used auto loan volume combined, and No. 2 in used-vehicle loans, according to Experian Automotive.

Yajnik spoke with Automotive News Special Correspondent Jim Henry by phone last week.

Capital One CEO Richard Fairbank said recently that auto finance is coming off a "once in a lifetime" period of good times. What does that mean?

In the downturn there were two things which were good for the quality of the loans we booked: Auto lenders were becoming more conservative in the loans they were willing to make and customers were becoming more conservative in the loans they were asking for. As a result, the loans that were booked in that time period had very low losses and good returns.

But now things are going back to normal?

Now as we come out of the downturn, conditions are becoming more normal. Some consumers are coming to the high side of what they should be borrowing. Private equity-funded lenders and other lenders are coming back to autos. Some lenders are developing habits in loan amounts and loan approvals that mean one has to be discerning in what loans you approve. It’s not the volume of loans; it’s the quality.

You don’t see volume actually retreating any time soon, do you? It’s more a case of slower growth, right?

I think the top-line growth has still a ways to go. Overall, auto sales have continued to increase. I expect that top-line sales growth will continue to increase. As more companies enter on the lending side, it will be necessary to be prudent on the lending side, and dealers will need to be careful with maintaining the right customers in the right cars. I think it’s prudent for lenders to take the high road.

TD Auto Finance and Chase Auto Finance recently said they are concentrating on their biggest-volume dealers. That sounded to me like Capital One's "Diamond Dealer" program.

We launched our strategy at the beginning of the downturn. We went to the Diamond Dealers and told them we would stick with them in the downturn and serve them. We did this at a time when we really didn’t have to do that. I guess imitation is the best form of flattery. We wish our competitors well. Our thing is really to stick with the game plan.

You can reach Jim Henry at autonews@crain.com.

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