The Hidden Reason Wells Fargo and Capital One Have a Big Advantage Over Other Bankshttp://www.fool.com/investing/general/2014/04/06/the-hidden-reason-wells-fargo-and-capital-one-have.aspx Jessica Alling
April 6, 2014
While many analysts and investors are still focused on the housing market and how their respective bank investments are handling the slow recovery and declining mortgage applications, there's a big opportunity that Wells Fargo (NYSE: WFC) and Capital One Financial (NYSE: COF) have been diving right into: auto lending.
Last year's 15.4 million vehicle sales led to a $79 billion addition to loan balances according to Experian's annual report on the auto finance market, with banks accounting for $27 billion of that balance. But even with the market still looking prime for growth, some of the top banks have lost their footing with market share of the lending business.
1. Losing the battle -- banks versus captives
As of year-end, only Wells Fargo's Dealer Services operations and Ally Financial held more than 5% of the total auto-financing business. Toyota Motor Corp. (NYSE: TM), Honda, and Ford Motors' (NYSE: F) captive rounded out the remainder of the top five lenders.
For new lending, Bank of America (NYSE: BAC) lost 38% of its new financing share versus 2012, the largest decline for any lender.
On the other hand, both Wells Fargo's Dealer Services and Capital One's lending arm gained 9.5% and 10.8%, respectively. These two lenders have generally been at the top of the list for market share, so other banks could take a page from their operations handbook to gain more ground in new lending opportunities.
2. Consumers favor auto loans
3. Favorable terms
Consumers are entering loans with longer term periods, with above-six-year terms gaining popularity. Though this allows the consumers to pay a smaller monthly payment due to a higher number of payments, it will eventually result in higher interest for the loan if not paid in full before the term expires -- increasing bank revenue f