Auto loans work hard for Wells Fargo



Car loans are king

Wells Fargo & Co (or Wells Fargo) (WFC) provides a complete suite of retail loans. Its specialty product segment, however, is auto loans. In 2013, the bank beat the previous top lender, Ally Financial Inc (ALLY), to become the largest auto-loan provider in the U.S. The bank provides all types of auto loans—to individuals and through dealers—for new vehicles as well as used.

Wells Fargo- 5 largest Auto Exposure- Saul

Wells Fargo has an expansive reach in this segment, offering loans through nearly 15,000 dealers across the U.S. The bank also enjoys long-tenured dealer relationships (average >15 years). It even has direct agreements with a few manufacturers, including one with General Motors Company (GM). The GM agreement was reached in 2011, and has since enabled the bank to add 2,200 GM dealers to its list.

The pros and pros of auto loans

Auto loans have the benefit of being secured at loan origination. The vehicle itself is the security. Wells Fargo uses estimates from automated valuation models to appraise and determine the value of loans disbursed. As a result, auto loans are relatively safe.

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Each quarter, Wells Fargo provides about 357,000 new or refinanced automobile loans to customers. At the end of its financial year 2013, the bank’s auto loans outstanding stood at $50,808 million. Plus, these loans carry one of the lowest percentages of troubled debt. At the end of financial year 2013, troubled debt in the auto loan segment stood at just $189 million, and had a charge-off rate of 0.63%.

Challenging Wells Fargo in this product segment are smaller lenders such as Capital One Financial Corp. (COF), which is part of the Financial Select Sector SPDR ETF (XLF).


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