It took Wachovia Corp. nearly a year to integrate the California auto lender WFS Financial Inc., but the Charlotte company said it was not idling as it worked to unite the companies' auto operations under a single brand.
Thomas Wolfe, the president of Wachovia Dealer Services, said the $707 billion-asset parent company finally began promoting all its auto loans under its own brand this month. But he also said that in the past year it had been making progress behind the scenes.
Now it is offering more prime loans in former WFS offices, where roughly 25% of the loans were nonprime, and it has introduced nonprime products in its traditional markets in the eastern United States. Last quarter it began making commercial loans to the 8,500 dealerships with ties to WFS, and it is making marine and recreational-vehicle loans in California.
Wachovia would like to promote credit cards through its auto loan office network, and it is planning to open more offices.
"There's a fairly large list of things we'd like to do," Mr. Wolfe said. "We spent most of last year putting the two organizations together. Now we see opportunity for innovation and finding new delivery channels."
In an interview last week, he said the length of the auto platform integration had nothing to do with the October purchase of the Oakland, Calif., thrift company Golden West Financial Corp., a much larger deal at $24 billion that had drawn much more criticism from analysts and investors. He said Wachovia took its time with the integration of WFS and its parent, Westcorp of Irvine, Calif., which were acquired last March for $3.9 billion, because it was dealing with "two mature businesses" and felt no imperative to rush through the process.
Wachovia is putting an emphasis on new distribution channels, and it is adding to its 47 regional auto-lending offices with plans to open one in New Jersey in May, he said. It is exploring further expansion of its network in Texas and Florida. The division also wants to segment its credit spectrum to offer more-specialized loans, particularly in terms of pricing.
Last month Wachovia reached an agreement with RouteOne LLC, a Farmington Hills, Mich., aggregator that allows dealerships to send applications electronically to lenders. Wachovia Dealer Services' loan portfolio has $26 billion of assets, including commercial loans to dealers and RV and marine loans, though Mr. Wolfe would not say what percentage of that total consists strictly of auto loans. He did say he would like to expand the entire portfolio by a least 10% this year.
Mr. Wolfe did say that auto loans make up "the majority" of Wachovia's installment-loan portfolio, a consumer line that includes its fledgling credit card business, which had $22.7 billion of loan balances at yearend.
That portfolio more than tripled last March when Wachovia added $13.2 billion of auto loans through the acquisition of Westcorp and WFS. The portfolio increased another 12.2% the rest of last year.
Installment lending produced the largest loan yields in Wachovia's overall loan portfolio last year, at 9.4%, versus 6.8% a year earlier, before Wachovia added the WFS portfolio and more than $1 billion of card outstandings.
WFS also increased Wachovia's exposure to nonprime borrowers, and analysts have estimated that nearly a quarter of its indirect auto loans fall into that category. Mr. Wolfe said his division's fastest-growing business is "A-minus" loans, which are underwritten with an analyst's review instead of an automated process. At $15 million, installment loans made up just 1.2% of Wachovia's nonaccrual loans at yearend.
However, he said that credit quality is holding up better than expected. Wachovia Dealer Services has tightened standards on nonprime mortgages in certain markets, which Mr. Wolfe would not name, but he said there have been no widespread changes in how it does business. "We haven't seen anything like what's been going on in the mortgage business. We're very comfortable with what we're originating."
John Hecht, an analyst at JMP Securities LLC, said in an interview last week that even though subprime auto lenders could report "modest increases" in credit losses, it would be incorrect to draw comparisons with the subprime mortgage industry.
"The credit problems in mortgages are more associated with lender issues than credit issues," Mr. Hecht said. Some auto lenders have raised loan-to-value ratios and durations, but lenders are more willing to let margins compress than participate in "irrational behavior."
There are opportunities for large banking companies to gain market share in a "very fragmented" industry, he said. The 10 largest auto lenders likely control about 60% of the market, despite the presence of large captive lenders, but the figure is smaller than the big lenders' share of the credit card market, he said.
The nation's 10 largest MasterCard and Visa issuers control 92% of both outstandings and volume among the 50 largest issuers, according to data in the January edition of The Nilson Report.
Mr. Wolfe said Wachovia plans to cross-sell more products and services in its consumer businesses and in its branches in the West. He said it is too early to say how such efforts are doing. Wachovia converted Westcorp's 19 former Western Bank branches last month and plans to begin rebranding Golden West's World Savings Bank branches in the fourth quarter.
Steven G. Boehm, the president of Wachovia Card Services, said in an interview last month that the dealership network offers "an incredible value proposition" for adding to its 800,000 card accounts. The challenge involves creating the right product to offer through the dealership network, he said.
Mr. Wolfe said one issue involves connecting Wachovia's credit card business with its auto loan operation, which conducts business across a wider credit spectrum.
"It's a question of combining some of the modeling when a customer comes through the door," he said. "It's not hard to create the approach, but we have to just make sure that we have the appropriate product."
