Lenders have more room today to cut margins to protect share, compared with other business cycles when lenders' cost of funds was higher and margins were thinner, Bradley said.
He took part in a panel discussion on Tuesday, Oct. 15, at the Auto Finance Summit here, hosted by Royal Media Group.
Tapping the brakes
Bradley overstated the case to make a point.
He and the other panelists said they recognize it's important to "draw a line" beyond which they won't cut prices or relax lending standards, even if it means they lose business. But they worry that other lenders might not stick to their standards.
"You reach a critical point. You have to decide what your model is, and stick with that," said Bill Jensen, national retail credit executive for Chase Auto Finance, with responsibility for prime and subprime auto finance.
"We've tried to stay with our model. That doesn't necessarily always play as well [with dealers] in good times. We try to be very, very consistent so our dealer clients understand what they're going to get," he said.
Long terms, bigger risk
Subprime auto lending -- financing customers with credit profiles that pose a higher risk -- has been a major driver in the steady rise in U.S. auto sales.
Morgan Stanley auto analyst Adam Jonas warned in a recent report that the market is increasingly turning "silly," with lenders offering what he calls "pulse" loans -- any car shopper with a pulse, gets a loan, often on extended terms.
Despite strong demand, some lenders said they are starting to avoid long-term loans on older, high-mileage vehicles.
"We're seeing terms of 60 to 72 months on cars in excess of 100,000 miles," said Jonathon Levin, CEO of Turner Acceptance Corp., Skokie, Ill., a regional lender primarily for independent, used-car dealerships.
"What is the endgame, and how soon is the inevitable going to present itself?" he said.
Subprime customers are likely to find themselves upside down and owing more than their cars are worth at trade-in. Lenders also face higher losses in the event of repossessions, Levin and other panelists said.
Jensen said in a separate interview that Chase enforces strict limits on mileage and the age of used cars.
Room to grow
Bradley, during the panel discussion, said there's still plenty of opportunity to sign up franchised dealers who are more interested in subprime now than they were before the recession, without the lender having to compromise standards.
"Before the last recession, the last cycle, many dealers were not interested in subprime. Today with margin compression on new-car sales, all dealers are now focused on doing it," he said.
"They all want to learn how to do it, and they all want to make it a more active part of their business," Bradley said. "Because the margins are much higher than prime."