Garnet Capital Advisors Blog

U.S. auto lending warmed up in the first quarter, as the total loans of banks and thrifts climbed higher and delinquencies declined.

Aggregate auto loans move higher
During the three months to March 31, commercial and savings banks' auto loan balances reached $358.27 billion, up $6.21 billion from the final quarter of last year and $33.88 billion higher than the first quarter of 2013, according to SNL Financial.

Several lenders bolstered their auto loan portfolios in the period, and Wells Fargo pulled ahead of Ally Financial Inc. to become the nation's largest auto lender, the media outlet reported. The former financial institution increased its basket of auto loans to $52.61 billion during the quarter, a $1.8 billion dollar climb from the previous quarter and $5.35 billion more than the same time in 2013.

Alternatively, Ally's portfolio reached $51.92 billion in the first quarter, which was $208.0 million higher than the prior three months and a $8.49 billion drop from the same time in 2013, according to the news source.

Wells Fargo growth strong
Wells Fargo has expanded significantly in the last two years, which brings attention to General Motors Co.'s move to hire Wells Fargo to provide financing for several product lines, Quartz reported.

In August 2012, the company expanded its relationship with the largest U.S. automaker, according to Bloomberg. Before this development, the lender was providing financing to customers and dealers of GMC, Chevrolet, Buick and Cadillac dealerships in the automaker's Western marketing region, according to the news source.

The major lender has since assumed responsibility for these activities in the South Central region. Tom Wolfe, who headed up the unit responsible for auto and credit-card loans, spoke to the company's eagerness.

"We like the relationship, so we'd certainly like to think about expanding it," he said during an interview, the media outlet reported. Wolfe emphasized that Wells Fargo could provide the same program to other manufacturers.

The financial institution might be fairly well-positioned, as it is now enjoying the dual tailwinds of a stronger relationship with the largest U.S. automaker and rising auto loan origination, according to SNL Financial. On the company's investor day, Wolfe stated that these originations rose 16 percent from the previous quarter.

Borrowing costs decline
Another factor that could help boost this type of lending is falling interest rates, the media outlet reported. During the last two years, these borrowing costs have steadily declined, according to SNL data.

In mid-June, the average rate for a three-year used-car loan was 4.19 percent, which was 19 basis points lower than the same time in 2013, according to the news source. Comparatively, five-year loans for new cars carried rates of 3.98 percent in mid-June, which was a year-over-year decline of 18 basis points.

Amid these developments, banks are finding auto loans to be increasingly attractive investments, providing a reasonable rate of return along with a shorter-term maturity.

Financial institutions interested in learning more about loan sales - and in particular those that involve automobiles - might consider contacting Garnet Capital Advisers, which has significant experience in this field.