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Risk remains high among financial institutions and dealers must consider this in their decisions.
Capital is becoming easier to obtain, said Ken Shilson, founder of the National Alliance of Buy-Here, Pay-Here Dealers. The underlying healt of some of the sources remains questionable, though.
Shilson advises keeping an eye on CD rates for financial institutions. The higher the rates, the more desperate the creditor is for cash.
“The guys who have the highest rates, you look for them on the next failure list,” Shilson said.
This underlying risk struck the buy-here, pay-here business in January when the collapse of Santa Barbara Bank and Trust cut off funding for refund-anticipation loans.
Santa Barbara’s problems came not from these loans, but from bad real estate loans made by it parent company.
Lee Domingue, CEO of AppOne, said the auto finance division of a credit source may be doing well, but dealers must ask if these firms “have digested all their problems.”
Credit unions have become a popular alternative for many dealers and consumers. These financial cooperatives are seen as safer than traditional banks.
Many entered the auto finance business aggressively in the past year.There’s some concern they have become too aggressive, especially in the subprime segment.
Debbie Matz, chairman of the National Credit Union Administration, warned of massive failures in 2010 due to increased risk.
“We’ve seen cases of credit unions going from well capitalized to shuttered within one year, and that can’t continue,” Matz was quoted as saying in Credit Union Times, a trade journal.
Mike Schenk, vice president of economics and analysis for the Credit Union National Association, said these concerns are overrated. Credit unions are merely responding to the needs of their members.
But Domingue views the threat as legitimate.
“Not managing risk properly equates to loses,” he said. |
