Wells Fargo (NYSE:WFC) is one of the biggest auto lenders in the industry. But its market share could be at risk as captive finance companies seek a come back with a vengeance. Thanks to rising leasing trends, new vehicle sales, and shifting credit scores, the nation's banks are slowing losing some of the gains they'd made from stealing Ford, Honda, and Toyota's finance customers.

Record sales growth
June new automotive sales hit an eight-year high, with 1.4 million cars and trucks sold -- a 1.4% gain over 2013. Thanks to an aging fleet of vehicles on the roads and improving economic conditions, the auto industry has seen a great first half of the year, with last month's surprising strength boding well for the rest of 2014.

With the gains in new sales, Wells Fargo's auto-lending arm has seen some big gains as well. Jumping from third to first in market share for all retail auto lending over the past 12 months, the San Francisco-based bank has been enjoying it's position as top lender with auto loans up $5.5 billion (11%) in the second quarter of 2014 versus the previous year. That marks the second consecutive quarter of auto loan growth over $5 billion for the bank.

But several trends may be working against Wells Fargo and other banks, favoring captive finance companies like Ford Motor Credit Corp, American Honda Finance, and Toyota Motor Credit Corp.

The automotive industry is well aware that the cars traveling on the highways today are getting old -- 11 years on average -- and they have been providing amble rebates and incentives to new vehicle buyers. Of course, to take advantage of those rebates, consumers have to finance their vehicles through the respective manufacturer's select lender, which is generally their captive finance arm.

Thanks to the incentives' success in driving new business, captive gained 18% in market share for new loans while banks lost 8% over the same time period. Half of all new loans signed in the first quarter this year were through the captive finance companies.

The top 20 lenders accounted for 72% of all new vehicle loans in the first quarter. Ford tops the list for new loan market share, followed closely by Toyota and Honda, according to Experian's first quarter State of the Automotive Finance Market report.

New Retail Vehicle Loans Market Share | The Motley Fool | Data from First Quarter 2014 Experian State of the Automotive Finance Market report

Wells Fargo falls well below the top lenders, with 4.65% of the market's new retail loans. If the bank wants to keep the top seat for auto lenders (across all financing types), it will have to boost its new vehicle loans.

For the captives, the boost given by incentives and rebates did come at a price, requiring them to look for new options for increasing traffic in the dealerships without eating away at their bottom lines. The need for a new approach as welcomed back the popularity of leasing.

Nearly 25% of the new vehicle sales during the first quarter were new leases, which is almost exclusively financed by the captives. As consumers look for the best vehicles with up-to-date features and low monthly payments, leases have become a more attractive financing option.

Honda claims the honor of top leased vehicle with the Civic, another sign that leasing is being accepted by a wider swath of drivers. While luxury vehicles were usually the top leased models in the past, the first quarter's data lists zero luxury brands in the top-leased category. With attractive leasing terms and more mainstream buyers, leasing could soon be a big threat to the nation's banks and their auto financing divisions.

One positive note for Wells Fargo -- lots of leasing means lots of quality used cars entering the market. Since leases usually have shorter terms and limitations on acceptable wear and tear, when a car is turned in it will be a top-valued used model. Wells Fargo's overall leadership in the auto-lending market is largely thanks to its strong hold of used vehicle loans with 7.09% market share -- nearly double its nearest competitor. Less wear and tear means higher valued vehicles, which could lead to bigger loans for the lender.

Last year, the nation's banks began slackening their tight credit qualification standards for auto loans. By allowing more nonprime and subprime lenders to borrow for their vehicle purchases, Wells Fargo and its compatriots welcomed in a wider range of consumers than the captives, leading to a bigger share of originated loans.

Now, the tables are turning, with the captives reducing their credit score requirements, bringing more borrower to their products. Captive finance companies have increased their exposure to borrowers outside of the "prime" range by 13% for new vehicle loans and 8% for used loans over the past year. In the same time period, banks have reduced their exposure, making captives more welcoming to all types of borrowers.

Tough road ahead?
Though Wells Fargo has certainly proven that it's a force in lending -- in both mortgage and auto segments -- there are three strong forces working against it. With the head of its auto-lending division recently announcing his departure, the bank has a big job to find a replacement that can help it retain its market share and combat the flow of customers away from its traditional financing options.