Automobile Lending by Commercial Banks

The Report of Condition and Income for all commercial and savings banks provides a wealth of detailed information on the installment lending activities of 9,122 of these banks for the year ending December 1999. These data are supplemented by the annual installment lending survey of the American Bankers Association. In this article we review the highlights of the involvement of these banks in automobile lending. Analysis of the data provides an in-depth survey of their policies and practices as they vary by size and location of institution.

At the outset, it should be noted that the United States is unique in having large numbers of small, independent banks. At the end of 1999, 7,806 of the 9,122 banks had average assets of about $85 million, whereas the assets of the 79 largest banks averaged $49.2 billion.

Between 1997 and 1999, banks slightly decreased the percentage of their total consumer installment portfolio committed to automobile loans, as shown in the following table. Nonetheless, direct and indirect automobile loans comprised by far the largest portion of their installment loans outstanding. At the end of 1999, they had invested 58.7 percent of the dollar amount of their installment loans in automobile loans. The next highest concentration was in personal loans: 13.5 percent. In 1999, the average direct automobile loan was $8,097 and the average indirect loan was $10,659. Small banks rely much more heavily on the direct lending than do large banks. Among the smallest banks the number of indirect automobile loans exceeded the number of direct loans by a ratio of 1.6 to one, whereas that ratio was about 7 to one for the largest banks.

Portfolio Distribution of Automobile Loans, 1997 and 1999 (Percentages of all loans outstanding)
	1997 % Distribution		1999 % Distribution
	Based on #	Based on $	Based on #	Based on $
Direct	10.1	9.6	12.1	10.3
Indirect	49.9	54.9	43.1	48.4
Totals	60.0	64.5	55.2	58.7

Indirect lending operations require a host of contractual terms that govern bank-dealer relations. The ABA's survey showed that most dealer plans on indirect loans were nonrecourse, ranging from 84 percent of arrangements of small banks to 92 percent of the largest banks. About three-fourths of the largest banks paid dealers' reserves up front, versus about four-fifths of smaller banks. In case of repossession, the largest banks were more than twice as likely to always charge back dealers' reserves (57.1 percent vs. 25.9 percent for small banks). Over a fifth of the largest banks reported using variable rates on direct and indirect auto loans.

These data and a great deal more concerning banks' policies and practices regarding consumer credit will be found in the forthcoming ABA Installment Credit Survey Report (Twelfth Edition).