October 29, 2014

Big banks cultivate laser focus on prime auto lending

In an effort to generate desired results amid sharp competition, many big banks are focusing on prime auto lending.

Capital One, Huntington Bank and Fifth Third Bank are all targeting auto loan originations, according to Automotive News. The latter two financial institutions are only extending prime-quality auto loans, while the former is also offering subprime and near-prime credit.

Capital One auto lending rises
The McLean, Virginia-based bank's approach seems to be working, as Capital One originated $5.4 billion in auto loans during the third quarter, a sharp 14 percent increase from the same time in 2013, the media outlet reported. One major factor Capital One has cited as helping improve its auto lending is cultivating closer relationships with the dealerships in its network.

"What's very clear is that the real leverage is in deep dealer relationships," Capital One CEO Richard Fairbank stated during a recent conference call, according to the news source. "In terms of the quality, the kind of loans that come out of that, it's a win-win."

Leveraging dealer networks
Huntington Bank has also been striving to generate more business with its existing dealer network, and currently offers prime-risk loans through 3,500 dealerships in 17 states, Rich Porrello, director of auto lending, told Automotive News.

Before an increase in Huntington's geographical scope in 2010 - expanding into eastern Pennsylvania and five New England states - it worked with 2,000 dealerships in six Midwest states, the media outlet reported. Due to this expansion, the bank's auto loan origination surged 27 percent in the third quarter from the same time last year, hitting $1.5 billion.

Fifth Third takes conservative approach
In the current landscape, Fifth Third is taking a conservative approach, refusing to extend auto loans that do not meet the required qualifications to be prime, according to Automotive News. This approach coincided with the financial institution seeing its auto loans hit $12.1 billion at the end of the third quarter, up 0.4 percent from last year.

The bank is currently originating between $400 million and $450 million in auto loans per month, but is refraining from getting involved in subprime or extending more credit, CFO Tayfun Tuzun told the media outlet.

"Clearly, some banks are viewing the subprime auto sector as an attractive sector," he told the news source. "We have not viewed it the same way."