NEW YORK - The competitive landscape in auto lending and financing could change dramatically this year if three banking mega-mergers announced this month go through as expected.
Although the Big 3 captive finance companies are still in a class by themselves in auto lending, the size gap between the biggest bank and the smallest Big 3 captive, Chrysler Financial Corp., has been narrowed.
Size counts, because bigger, more efficient banks can drive down the unit cost of servicing loans. That can mean higher margins and/or the ability to offer lower rates for customers. Common business lines can be consolidated, and geographic diversity leads to less risk.
The new BankAmerica Corp., to be formed by the merger of San Francisco-based BankAmerica and Charlotte, N.C.-based Nations-Bank, will have a combined portfolio of auto loans and leases of more than $25 billion.
Chrysler Financial had $28.5 billion in outstanding loans and leases as of March 31, not counting wholesale business. No. 1 Ford Motor Credit Co. is far bigger still, with $86.1 billion outstanding in consumer loans and leases at the end of 1997.
The BankAmerica deal was one of three major banking mergers announced this month. The others are: Columbus, Ohio-based Banc One and First Chicago NBD; and New York-based Citicorp and Travelers Group. All are expected to be completed by the fourth quarter, although the Citicorp-Travelers marriage faces regulatory hurdles.
SEA TO SHINING SEA
The new BankAmerica is a 'sea to shining sea' franchise, said Carla D'Arista, a banking analyst for Friedman, Billings, Ramsey & Co. in Arlington, Va.
BankAmerica is a power in the West, especially California, and NationsBank is strong in the mid-South and Southeast. Both banks are already huge players in the auto lending business, and growing.
Headquarters for the new company will be Charlotte, with global retail banking based in San Francisco.
D'Arista said NationsBank Chairman Hugh McColl has a 'bigger is better' philosophy. He also will be chairman and CEO of the merged banks. David Coulter, chairman of BankAmerica, will be president.
D'Arista said NationsBank and BankAmerica predict that for all operations, not just auto finance, the merger represents $1.3 billion in cost savings over the next two years.
In an interview last month, before the BankAmerica merger was announced, Pat Doran, president of NationsBank Dealer Financial Services Group, said the difficult part of getting bigger is maintaining 'eye contact' with the customer.
'Where you get economies of scale is on costs, the cost of servicing customers and collecting the accounts,' Doran said. As far as the customer is concerned, 'Bigness does not connote anything other than we're very large,' he said.
Can a lender have one-on-one customer relationships and also cover the entire country? Doran thinks so.
'The car business is so vast ... everything we do is on some kind of scale. But on the sales side, in credit granting, we need to be more local-market oriented,' he said.
The second-biggest merger, as far as auto finance is concerned, is between Banc One and First Chicago NBD. That deal also is expected to take effect in the fourth quarter.
Another example of how size matters: Counting every business area, the two banks forecast annual cost savings of $930 million.
The combined banks will keep the Banc One name. The new Banc One Corp., with headquarters in Chicago, will be the No. 2 bank in auto finance, with about $20.1 billion worth of auto loans and leases.
That is just ahead of Chase Manhattan, the front-runner until this year. Chase Auto Finance Corp. has about a $20 billion portfolio.
UNDER AN UMBRELLA
The third major merger is between Citicorp and Travelers. The new company, which will be the world's biggest provider of financial services, will be called Citigroup and will keep the Travelers red umbrella as its logo.
That deal was announced April 6. The two companies said it can be consummated by the third quarter, although regulators could wreck the timetable. The deal is controversial because of federal regulations meant to keep a barrier between the banking and insurance industries.
Compared to NationsBank or Chase, Citicorp is not a major player in auto finance. The bank does not break out its auto portfolio, but a spokeswoman said Citibank, the company's banking subsidiary, has loans and leases in 15 states. The tri-state metropolitan area of New York-New Jersey-Connecticut is its strongest market in auto finance.
Travelers reported it had sales of $555.7 million in auto insurance in the first quarter, up from $478 million in the year-ago quarter.