Consolidation Looms

Auto finance companies have been growing for the past few years, putting acquisitions largely out of reach. It’s difficult to find a player large enough to acquire a company originating $5 billion or $10 billion of loans per year.

That dynamic is finally changing, and consolidation will be the name of the game soon. With so many companies trimming loan volume, M&A is inevitable. In some cases, the acquirer will simply be on the prowl for a bargain; in others, two companies will look to join forces to improve their standing in the marketplace.

Take AmeriCredit for example. The Fort Worth, Texas-based lender last week decreased one of its credit facilities to $450 million from $1.12 billion, in line with its pace of originations. At its peak, AmeriCredit was originating about $7 billion of loans annually and maintained a $15 billion portfolio. There were few companies that would have considered buying AmeriCredit at that size.

Now, however, the company would make a good acquisition target. It got shut out of the securitization market — essentially cut off from its funding mechanism — during the height of the mortgage crisis and has yet to rebound. The company has posted back-to-back quarterly losses on the heels of rising delinquencies and losses. But the fundamentals and technology for solid auto lending are still in place.

Take a look around the industry — particularly at companies that have cut back on origination volume or reduced staff — and you’ll see some real opportunity. Interesting changes are on the horizon.