Independent Banker - July 2017 - 48

Lender Life
there aren't some challenges, but
overall, auto lending is a bright spot
for many community banks.
" There is a lot of consumer confidence
right now, and people are
looking to make larger purchases,
such as cars, " says Rob Ashbaugh,
senior risk management consultant
at Sageworks. " There are a lot of
banks that have had significant
growth in that sector. "
Naturally, the economy is a key
driver of auto lending, and the
economic recovery over the past
you're looking for a small amount,
which big banks don't like. But you
have a good payment record, and
you want to put the kid on the loan
so he can establish credit. That's a
community bank loan all the way. "
Buhrmaster says auto loans make
up about 35 percent of his bank's
portfolio, and that's split about
50/50 between new and used cars.
Like the new-car market, usedcar
sales have been strong in this
economy. According to Mannheim's
Used Car Market Report, 2017 was
" I like the used car market.
Families need second cars,
and some are buying a third
car for their young-adult
children. That's become an
excellent market for us. "
-JOHN BUHRMASTER,
1ST NATIONAL BANK OF SCOTIA
when they seek financing. They can
use the automaker's " captive " financing,
such as American Honda Finance
Corporation; they can seek financing
from some other source, such as AAA
or an online-only lender; or they
can seek a loan from a community
bank. Sometimes getting a loan from
a community bank involves getting
preapproved by the bank before the
car is purchased, but most commonly
the transaction is initiated at the
dealership itself.
" Our indirect business [loans
through dealerships] is a steady
business, and that's because of the
relationships we have with the
finance managers at the dealerships, "
Buhrmaster says. " The finance manager
knows nothing will get screwed
up if he works with us. The worst
thing that can happen is to pass a
loan to a customer and have it go
wrong, because then that customer
will go to someone else next time. "
five years-albeit slow-has moved
a steadily increasing number of cars
off the lot.
Used-car strongholds
New cars, because of their high
price points, generate a lot of
financing need. But that's also where
the automakers' own finance arms
are strongest. Financing used cars,
on the other hand, is something
community banks dominate in
many markets.
" I like the used-car market, "
says John Buhrmaster, president
of 1st National Bank of Scotia in
New York and a past chairman of
ICBA. " Families need second cars,
and some are buying a third car for
their young-adult children. That's
become an excellent market for us.
If you're buying a car for your kid,
the seventh consecutive year that
used-car sales increased in the
United States.
The strong economy has also had
an effect on buyers' qualifications.
According to the 2016 International
Automotive Lending & Leasing Survey,
73 percent of auto lenders do not
expect to make any changes to their
underwriting and credit quality standards
this year, and 9 percent plan to
tighten standards. Those data imply
that the majority of lenders feel
consumer creditworthiness is strong
enough that they don't need to loosen
standards to stimulate lending.
A strong economy makes for a
fertile financing environment, but
banks need an important partner
to succeed in auto financing: car
dealerships.
Auto buyers have several choices
48 ICBA IndependentBanker July 2017
Making connections
1st National, which has about
$450 million in assets, has relationships
with 90 auto dealerships,
Buhrmaster says. That's a lot of relationships
to maintain, and one way
the bank does that is by dedicating an
employee to that market.
" We have a retired auto dealer on the
road every day visiting the dealerships,
just stopping in, seeing if they
need help with anything, bringing
them supplies, taking them to lunch
once in a while, " Buhrmaster says.
" And he speaks their language. "
Good relations with dealerships
is one reason Farmers State Bank
saw good growth in 2016. Rohlfsen
says the bank established several
new dealer relationships in nearby
Waverly, a community in which his
bank previously did not have much
auto-lending presence. Also, the
community bank changed how it
compensates dealers to a flat $45
fee instead of basing compensation
Independent Banker - July 2017

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