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Banks Get Creative About Auto Financing
Facing competition from alternative financing sources, they offer new products, work more closely with dealers
By LUIS A. RAMOS
March 18, 2004
With a generally flat auto market and increased competition from alternative financing sources, local banks have had to get creative in efforts to boost their loan portfolios and protect their market share.
In the past few years, local auto sales have remained fairly stable in the range of 122,000 to 123,000 units since peaking at 128,500 units in 1999. In 2003, there were 122,794 new vehicles sold, of which about half were cars; the rest were in the Sport Utility Vehicle (SUV) category, which includes light trucks and minivans.
"We have simply had to be aggressive," said Milagros Perez Gonzalez, executive vice president of Banco Bilbao Vizcaya Argentaria (BBVA) Puerto Ricos auto division. "BBVA is the only financing entity offering an 84-month term and the only one offering residual-value financing up to 66 months, instead of the standard 60 months. Our close relationship with auto dealers has also supported sales objectives."
BBVA was the leader among commercials banks in 2003, with an auto-loan portfolio of $877 million, up 7% from the previous year. It holds a 36% market share among commercial banks and 15.5% in the entire market, according to industry sources.
FirstBank also had a strong showing in the fourth quarter of 2003 (4Q03). It leveraged its conventional financing and leasing resources to finish the year with a portfolio of $614 million in auto loans and a market share of 25% among commercial banks. The size of the portfolio swelled 13% from 4Q02.
"We at FirstBank pioneered integrating our resources with those of auto dealers," said Aurelio Aleman, FirstBanks executive vice president of consumer banking. "Financing facilities were extended on various levels to facilitate dealers objectives. Just as important, we established a physical point of sale at dealerships and invested heavily in technology to make it all feasible."
Banco Popular and Scotiabank obtained 24% and 15% market share respectively in 4Q03. "We are looking forward to this year not only because of the economics of an election year but also because manufacturers will be introducing eight to 10 new models in the next two years," said retiring Popular Auto President Andy Morrell.
All told, the commercial banking sector increased its participation in auto financing by $231 million, or 10%, over the same period in 2002. Commercial banks as a group currently represent 43% of all financing institutions.
However, local commercial banks are facing stiff competition from alternative sources of financing such as Reliable Financial Services Inc. and the automakers own financing divisions. Reliable is at the top of this group, with a 17% overall market share and $946 million in loans issued in 2003. Reliable expanded its loan portfolio last year by $139 million, up 17% from 2002, thanks in great part to its affiliation with Wells Fargo Bank.
As a group, brand financing companies Ford Motor Credit, GMC, Toyota Credit, and Chrysler Credit lost almost four points of market share, even though Toyota, Ford, GM, and Chrysler are among the top-selling auto brands on the island. Despite losing ground, automakers financing divisions still own 33% of the entire market.
In 4Q03, this group generated a combined $1.9 billion in auto loan financing. Ford Motor Credit, in spite of losing market share, led the pack with $773 million in financing and a 28% market share among private and branch financing companies.
This Caribbean Business article appears courtesy of Casiano Communications.