Leadership: Ready for Growth

As the largest remarketer of vehicles in the U.S., Santander Consumer USA (“SC USA”) pays close attention to trends related to car sales, repossessions and vehicle valuations. Lately we have analyzed datathat – while not surprising – has implications for anyone involved in the remarketing side of the auto business.

First, car sales and repossessions continue to trend downward. After an uptick in the first two quarters of 2009 in conjunction with Cash for Clunkers, the third and fourth quarters saw the sharpest falloff in two years. While this isn’t news to anyone, it is interesting to note that the gap between the number of car sales and the number of repos continues to widen. Repossessions have slowed at an even faster pace than car sales, which means that given the one- to two-year lag we see between sales/repo numbers and what happens at auction, it’s a safe guess that auction volumes will stay depressed for another year.

But there is other data that offers more positive news. When we look at car sales by credit quality we see that sales from prime borrowers peaked at its highest level since 2007 in the middle of Q3 ‘09. During the same time-frame, sales from sub-prime borrowers reached its lowest level – a clear response to the universal tightening of credit. But then there is a sharp turnaround in both of those credit segments starting with the back half of the third quarter and continuing through the end of last year. Prime sales fell nearly two percent while subprime sales rose approximately three percent. This suggests to us at SC USA that the market is opening back up, with credit being slightly easier to come by.

We believe 2010 will be a “ride it out” year for the auction business as we all patiently wait for auto sales to improve. Things look promising. As we go to press General Motors has just announced a 21 percent increase in March 2010 sales over February, and Hyundai reports a 15 percent increase for the same period. At least one auto securitization has happened this year. As a trend-watcher, things appear to be looking up. We’ll take it. With any luck, 2011 may give us a positive “perfect storm” for auto auction sales.

Jason Grubb
Chief Operating Officer,
Santander Consumer U S A I nc .

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