Capital One Auto Finance Seeks Franchised & Independent Dealer Partners as President Eyes a Return to Growth
By Jennifer Reed, Auto Group Editor
June 28, 2011
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PLANO, Texas — Now that the company has successfully weathered the capital markets storm, Capital One Auto Finance president Kevin Borgmann explained to SubPrime Auto Finance News his division is ramping up growth via new dealer relationships and hiring associates.
In addition to expanding and deepening relationships with franchised and top independent dealers via its Diamond Dealer Program, Capital One Auto Finance is also hiring across many areas to support growth.
Recapping how the company came through the downturn, Borgmann said, "In the past couple of years we have essentially transformed our business. By supplementing our historic strengths in analytics with an intense focus on developing deep dealer relationships, we began to reposition our business in early 2008, given the deteriorating market conditions at the time. What we did was scale back our dealer prime business by focusing on a much smaller network of dealers with whom we had deeper relationships and providing them with a more differentiated level of service.
"We focused on originating loans with better credit characteristics by tightening underwriting and steering our originations up-market within both the subprime and prime parts of the market. The fact that Capital One has become a top 10 bank over the last few years has also provided us with ample deposit funding and much less dependence on the capital markets than our non-banks competitors. That helped us be a steadier partner through the last recession and will continue to help us in future cycles."
Fast forward to today, and the company's returned to growth.
He said the company's dealer program encompasses franchised and top independent dealers.
"For current Diamond dealers, we want to expand our relationship and become their number one non-captive lender, if we are not there already. We try to earn that position by having an outstanding program, differentiated service and flexibility, as well as exclusive marketing programs to really help drive their sales," he said.
"At the same time, we are adding new dealers to our Diamond Program across the country. We see a lot of demand from dealers who hear about the Diamond Program from current Diamond dealers and want to be a part of it. Anyone interested in learning more about being a part of the Diamond Program should contact us through DealerTrack or RouteOne, and we will put them in touch with a local sales manager in their area," Borgmann highlighted.
Via this program, dealers gain exclusive benefits, such as full spectrum credit options, analytical muscle and "exceptional customer service," the president stressed.
"The most basic qualification for the program is being committed to a relationship with Capital One, and like any relationship, you need to build it from both sides," he pointed out.
Borgmann even boasted, "Our Diamond Dealers appreciate our ability to fund across the credit spectrum and they are on the receiving end of the maximum amount of rate flexibility and exceptions that we offer in the market. Our broad underwriting, maximum flexibility and exclusive marketing programs allow our Diamond Dealers to sell more cars."
The company is not just adding new dealer relationships, it's also hiring new associates, as well.
"As the economy continues to recover, we expect to see continued growth in the auto sector as we did at the end of 2010. The Wall Street Journal is predicting that U.S. auto sales will rise 10 percent in 2011 and that is similar to our forecast. The crisis in Japan has dampened sales somewhat in the short term, but we expect them to recover strongly in the second half of the year," Borgmann indicated.
"Competition is heating up, but we have been able to win more than our fair share of new growth. We do that by focusing intensely on providing great service and a great program that makes dealers want to make us their number one non-captive lender. When we do that well, we find that profitable volume comes along with the strong relationship," he continued.
Giving one example of hiring, Borgmann said the company is seeking customer service agents with a passion for the customer experience, as well as sales managers and relationship managers who are looking to help dealers grow.
"We love auto experience, but even more than that, we look for people with a passion for what they do and a commitment to excellence and doing the right thing. Those kinds of people are attracted to us also, and they love our culture and our focus on helping them grow their skills and careers. We encourage anyone who is interested to go to www.capitalone.com/careers," he stressed.
But dealers and associates are just part of the key ingredients helping the company to bolster its growth. Improved delinquencies and strong used values at auctions are also strengthening the company's bottom line.
"As the economy continues to improve, we are seeing net charge-offs and delinquencies decrease substantially. That is partly a result of the improving economy, partly a result of improving auction prices that help our recoveries, but a lot of it has to do with the strong underwriting discipline we have had over the last few years," Borgmann said.
"Like everyone else, we are seeing our collateral earn record prices at auction. We think that is primarily the result of constrained supplies of used cars and that is a temporary effect. When new-car sales pick up, it will eventually increase the supply of used cars, as will fleet sales into the used market. So while we have benefited from higher used-car prices, we are not counting on that continuing. In fact, we include a substantial decline in used values into all our underwriting decisions and forecasts today," Borgmann told SubPrime Auto Finance News.
As for leasing, Borgmann said the company is currently not in this market. However, he noted it's something Capital One looks at from time to time and will continue to keep its eyes on.
And what about the developing Consumer Financial Protection Bureau? The Capital One Auto Finance president does not appear too concerned.
"There is no doubt that consumers want fair, transparent products and practices, and that is high on the list of their elected officials and our industry's regulators. I think pretty much everyone involved in our industry wants the same. The next question then is by what tactics do we accomplish that goal? We have always taken an approach of constructively engaging with regulators and elected officials, helping to educate them on how the industry works, and options for accomplishing their goals in a practical and effective manner," he said.
And finally, where does he see the non-prime market in the future?
"We still find real value in the below prime market, and we know that consumers do, too. Many consumers have had their credit damaged over the past few years, but they still have the same needs they did before the recession. They need transportation to get groceries, get to work and take their kids to school. So we think that non-prime lending plays a very important role in our economy," Borgmann explained.
"The key is to focus on sustainability — making loans that customers can afford, using underwriting practices that are sustainable through the cycle, having funding sources that will be with you through thick and thin. That helps you be a steady and reliable partner for dealers, and they remember that. I often meet dealers who tell me that they are loyal to Capital One because of how we stuck with them through the recession," he added.
"We do see healthy competition returning to the market, and that is good for customers and good for dealers. And we think we are very well positioned to win more than our fair share in a competitive market. But again, the key is focusing on sustainability. I think that lots of people in our industry learned that lesson over the last few years, and I hope it always stay front of mind," Borgmann concluded.
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