Automotive News - December 1, 2008 - (Page 32) 32 • DECEMBER 1, 2008 INSIGHT Large subprime lender Triad works to reinvent itself Donna Harris dharris@crain.com Triad Financial once could boast that it ranked among the nation’s top 10 subprime auto lenders. But in May, Triad stopped accepting new applications for auto loans through 6,000 dealers, and in October it ceased providing auto loans directly to consumers. Now Triad sees an opportunity to reinvent itself. Although the company no longer writes auto loans, it still can service them. Triad already is servicing its own $2.6 billion auto loan portfolio, handling the billing and collections as well as selling repossessed vehicles. “A lot of people in the business don’t want to be saddled with servicing loans, so they outsource it,” says Jack Tracey, executive director of the National Automotive Finance Association, a trade association for the subprime finance business. “There aren’t many companies that service loans, and some have spotty reputations.” The credit crunch has heightened demand for loan servicing companies, Tracey says. Many conventional lenders exited subprime financing. Some major lenders, such as GMAC Financial, have cut off all but the top borrowers. Triad’s Scott France: We can service thousands of accounts for lenders and investors. goes to credit unions, which don’t have experience with riskier borrowers. And some lenders are selling their auto loan portfolios to investors. These businesses often need a third party with expertise to service the loans, he says. Says Tracey: “Servicing the loans is a hassle. It’s a very detailed business. There are a lot of things to worry about. A company the size of Triad has the capacity to handle the details in quantity accurately. It has state-ofthe-art systems and has retained its staff, so it has the expertise.” Companies that service loans typically are paid a percentage of the interest rate collected on the loans, he says. Triad was founded in 1989. The company, with nearly 800 employees, has its headquarters in North Richland Hills, Texas, and has a regional office in Huntington Beach, Calif. Escalating credit crisis In 2007, Triad ranked No. 52 among the top automotive lenders in the United States based on loan and lease volume, according to the research firm Experian AutoCount. By mid-2008, Triad had vanished from that list. As an auto finance company, Triad ‘Very detailed business’ Car dealers are getting into the finance business to provide auto loans to more of their customers, says Scott France, Triad’s senior vice president. Some of the subprime business also depended exclusively on its ability to bundle loans and sell them to investors as securities to raise funds. But investors’ appetite for those securities waned this year as the credit crisis escalated. The costs involved in selling those loans to investors skyrocketed, making it unprofitable for Triad to raise funds, France says. Triad still services its own loans and has the infrastructure in place to service thousands of accounts for other lenders and investors, he says. Triad services more than 200,000 accounts and auctions more than 25,000 repossessed vehicles a year. Over the past 10 years, Triad has serviced more than 1 million collateralized loans, says CEO Dan Leonard, who adds, “The move is a natural fit for Triad.”c HEAT UP YOUR SALES! Credit unions slow slide to longer loans Lindsay Chappell lchappell@crain.com We approve every customer in writing in 30 seconds or less… so you can convert your turndowns into approvals and sales. Our Guaranteed Credit Approval Program allows you to eliminate customer turndowns and provides 3 different financing programs to meet your customers’ needs and your profit requirements. Isn’t it time for you to heat up your sales and profits with Credit Acceptance? NASDAQ: CACC Changing lives since 1972. creditacceptance.com or 1-800-873-0512 The creep toward longer-term auto financing by the nation’s credit unions appears to be slowing down — or at least pausing. Whether the trend will reignite once the industry sales pace picks up remains to be seen. But according to a key monitor of credit union activity, the increase in loan duration has flattened this year. The resistance it is hitting? The entire industry’s loan-to-value ratios have gotten out of whack. This year’s much-observed crash in dealer trade-in values for trucks and SUVs has cast a pall over long-term loans for some consumers. Why stretch out payments over seven years for a product that is losing its value faster than ever? Credit Union Direct Lending, the credit union industry provider of sales services, reports that 2007 saw a 20 percent rise in the volume of 73- to transactions that make sense for their members. JAY JOHNSON Callahan & Associates “ Credit unions are trying to keep an eye on ” 84-month auto loans and a corresponding drop in the volume of 49to 60-month loans. CUDL data show that 36 percent of the new-vehicle loans made by credit unions are now in the six-to-sevenyear range, up from 30 percent in 2006. Loan maturities of longer than seven years rose from 1.8 percent of the business in 2006 to 2.4 percent last year. “Those numbers are holding steady for 2008, according to the preliminary figures I’ve seen,” says Joe James, a CUDL market research analyst. “No further change has happened. We don’t believe you’re going to see loans continuing into 100 months.” Different approach Credit unions traditionally are more flexible in lending practices than national banks or captive finance companies. Smaller credit unions are more willing than other lenders to modify loans as needed. Credit unions seek ongoing relationships with loan customers. may help explain why credit unions are faring slightly better in the market’s loan-to-value crisis. Credit unions tend to avoid writing loans that leave their customers upside down. According to data compiled by J.D. Power and Associates, the industry average loan-to-value rate was 105 percent in September 2008 — meaning consumers are borrowing slightly more than the value of their new vehicles. Credit union loans are running at about 98 percent of vehicle value, according to the Power data, meaning the consumers have some equity in the vehicles they’re trading in. The simple explanation, says CUDL’s James, is that credit union loan holders on average have put larger down payments on their purchases. Says Callahan’s Johnson: “Credit unions are trying to keep an eye on transactions that make sense for their members. They are taking an approach of asking, ‘What arrangement makes sense for you in the longer run?’ Not just, ‘How do we find a payment low enough to get you into the car?’ “The auto industry in general has gone in that direction,” Johnson says. “But credit unions tend to be pretty sensitive lenders.”c Flexible The trend has emerged among credit unions because those finance sources occupy a unique position in the auto lending industry, says Jay Johnson, executive vice president of Callahan & Associates, a Washington financial services firm that works with credit unions. Credit unions traditionally have been the source of more flexible financing for consumers. Most of the credit unions in the country are relatively small — with $50 million or less in assets — and often are local enterprises where lending managers might even know their customers personally. Consumers are likely to find a more sympathetic ear for a request to stretch payments over six or seven years than they would find at a major national bank or an automaker’s captive finance arm. “Credit unions are usually trying to establish an ongoing relationship with a consumer,” Johnson says, “and an auto loan is typically the first transaction in their relationship.” Relationship issues That ongoing relationship issue http://www.creditacceptance.com http://www.creditacceptance.com
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