Financiers Expect Heightened Competition Amid Looser Underwriting

Competition is starting to shift out of low gear.

After turning the corner on capital constraints and economic distress, the auto finance sector is gaining momentum. Lenders will feel pressure to reach into deeper credit tiers and relax underwriting standards to grow volume.

Those were some of the core findings in the Auto Finance Forecast Fall 2010, an exclusive survey conducted by Auto Finance News and sister web site AutoFinanceNews.net. The Auto Finance Forecast gauges activities and sentiments in the automotive lending and leasing market.

“Competition will slowly come back,” wrote one finance company respondent. “Be aware of the return of loose credit practices.”

With rivalry heating up, advance rates, leasing, and incentive spending will all be driven higher, lenders predicted.

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Comment by Steven David on October 28, 2010 at 10:51am: Marcie,

I do not disagree with your comments. However I do not believe the momentum is coming back over night. This crisis (primarily due to mortgage lending) is still making it very difficult to get securitization's executed. I believe the real growth will be for the smaller indirect lenders picking up market share where the larger players have left a significant void. We are growing significantly with higher than ever credit profiles and exceptional collateral. This is the opportunity to edit wall street and their high fees and work directly with the purchasing entities.

Comment by Marcie Belles on October 28, 2010 at 1:29pm: True, momentum will not return overnight. What worries me, though, is that competition -- and the aggressive pricing that ultimately follows -- is coming back quicker than the pace at which the economy is healing.

Credit quality is definitely strong at this point, but as you say, there is opportunity for smaller independent players. How will they garner additional share? For some, it will be with unrealistic pricing. The process will be gradual, but it's definitely coming.

As for securitizations, they seem to be in pretty high demand these days. Auto ABS has accounted for almost half of the issuance so far this year.