Nicholas Stanutz is in charge of a $6.8 billion portfolio of auto loans and leases for Huntington Bancshares Inc., the Columbus, Ohio, parent company of Huntington National Bank. In addition to being executive vice president for consumer credit and dealer sales for the bank, he is chairman of the Consumer Bankers Association's auto finance committee.
Like many banks, Huntington has taken its lumps in leasing. In the third quarter of 2000, the bank took a special charge of $50 million, before taxes, to write down residual values on its $3 billion lease portfolio. That was in addition to a $37.8 million writedown in 1999.
Staff Reporter Jim Henry spoke with Stanutz at the Consumer Bankers Association Automobile Finance Conference in Orlando, Fla. on March 13.
In your welcoming speech today you referred to the proverbial unpleasant chat with the CEO about residual values. You've been there, haven't you?
Right. We took a $50 million pretax writedown last year. But unlike some other banks, we took everything out to a five-year horizon. Others did probably two years, and maybe they will have to come back and do some more. We decided to take the $50 million and be done with it.
Was leasing the main reason?
We recognized in 1999 that lessees, especially short-term lessees, regarded their leases really as a rental. Residuals probably were at their highest point. But in 1999, we bit the bullet and decided we wanted out of this two-year lease business. As a result, our lease volume probably was off 30 percent last year.
What is your footprint?
We are the dominant bank in Ohio, and second only to GMAC and Ford Credit. We have about a 7 percent market share in Ohio, vs. 12 percent for GMAC and 14 percent for Ford Credit. The next-biggest bank probably has about a 5 percent share. Ohio, Florida and Michigan probably are 70 percent of our production. But we're also in Indiana, West Virginia, western Pennsylvania, Kentucky and, recently, Nashville, Tenn.
You still do leasing - just less, right?
We still do leasing. We eliminated doing two-years. We think short-term leasing is the captives' market today, even up to 36 months. That leaves us with 48 and 60 months. We never have done a lot of 60-month leases, but what we know from the ones we have done is that only about 10 or 15 percent of the cars come back. It's like a loan. Not too many people go the full 60 months before they trade it in or do something else with it, other than pay it off.
What is your mix of new business, lease vs. finance?
Last year loans were about $2.2 billion, leases about $1.3 billion. Our portfolio is more like 50-50 loans vs. leases, but that reflects business we wrote earlier.
What is your top issue for CBA?
I think the troublesome spot for banks in 2001 is that we are losing the new-car business to the captives. Therefore, we're being left with financing the used-car segment. The fixed costs, the underwriting time and effort, booking the loans, all those things cost about the same amount of money and take the same amount of time and the same number of people as a new-car loan. But the average new-car loan is $20,000, and the average used-car loan is $15,000. That means I've got to spread those same fixed costs over a smaller loan amount. You might say that the used-car loan has a higher interest rate, and you'd be right, but it has a higher interest rate because the risk is higher.
Can you counter the manufacturers' incentives?
As long as the manufacturers continue to build more cars than they can comfortably sell, and use incentives to make up the difference, I'm concerned about long-term profitability for banks in auto lending without our fair share of the new-car business.
What about leasing?
One of our formidable challenges is to figure out which segments in leasing we should be in, and whether we should be in some other segments, like the sport-utility market.
In 1990, brands representing only 8 percent of the market had cars priced over $40,000. Now it's 23 percent. And the difference is almost solely in the high-end sport-utility market, where the average sticker price is about $50,000. Now, at the end of a four-year lease, if you bring that $50,000 car back at today's residuals, it's got 60,000 miles on it, it's four years old, and the residual is $20,000. Do the math, and the buyout is a monthly payment of $550 per month. Now what is the market for that 4-year-old car, when consumers see they can get a brand-new $28,000 vehicle for $550 per month? Which will they buy?
What do you tell dealers when they complain about banks getting out of auto lending?
The dealers' attitude is, if you're going to do these lease deals, and if you want to take the risk - risk that the dealers themselves would not take - then, hey, go ahead! In other words, the dealers will take whatever they can get. You heard dealers today talking about GE Capital, and how great it was, that they were helping the dealers move more cars. What they don't mention is that it was the residual risk that killed GE. (GE Capital Auto Financial Services stopped accepting credit applications from dealers on Dec. 1, 2000.)
I think it is more realistic to tell the dealers that we are not going to be all things to all people. We have a business model, and it is not going to work at all term lengths, and it is not going to work for all models.
I would be very surprised if we were sitting here next year talking about banks that continued to pursue business across the whole spectrum of all makes and all models.