Why the auto finance market share needs to be protected



Auto finance is driven by consumption

Auto finance is similar to credit card loans—both are driven by consumption. Capital One has a large repository of data on customers’ spending patterns. It has financial strength from the credit card business. The bank uses this data to target customers more effectively.

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Capital One grew its auto finance business rapidly

Auto finance is a business where Capital One (COF) grew rapidly. The bank entered the market in 1997. Since then, it has been able to build a sizeable market share in this business. In 2013, Capital One had nearly an 8% market share of new originations. It lags behind Wells Fargo (WFC). However, it has a higher market share in new originations than U.S. Bank (USB) and PNC Bank (PNC). It did this despite being physically present in a limited geography.

Entry barriers are lower in auto finance

Unlike the credit card business, the entry barriers are lower in auto finance. The credit card business depends more on relationship banking. People maintain a long-term relationship when they hold credit cards. This isn’t true to the same extent in auto finance. It’s driven more by offers and interest rates. In the face of aggressive competitors, market share loss can be quick in auto finance.

Auto finance is a market where Capital One enjoys a prominent position. However, it’s a relatively newer entrant. The bank should look at holding and consolidating its market share in this business as a first priority. If it can consolidate its market share, then it should look at expanding its market share.

In this business, a continued loss in market share should alert long-term investors. Capital One is a part of the Financial Select Sector SPDR (XLF). It forms a 1.46% of XLF.


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