Banks and automakers drive auto lending spike

People look at vehicles at AutoNation Toyota dealership in Cerritos, California.
Mario Anzuoni | Reuters

Wall Street banks are driving off with the auto lending finance business — but automakers, who vastly expanded their financing capabilities in the years since the global financial crisis, are backing more borrowers, as well.

By the end of 2015, banks — the primary source of credit to car buyers who need to borrow — expanded their market share to more than 35 percent, according to Experian's State of the Automotive Finance Market report for the fourth quarter. Banks control more of the auto financing market than any other entity, the report said.

Big banks and automakers are channeling cash to car buyers as loans are extending for longer periods, as consumers are spending more on monthly payments and as borrowers with increasingly worse credit are getting loans. The flood of credit to the automotive market has been met with a chorus of skepticism, comparing low-grade borrowing to the same lending that preceded the home values crash that coupled with the global financial crisis.

But credit quality — similar to the banking industry's exposure to energy debt — varies from firm to firm.

"We're very, very prime focused," said Bruce Jackson, head of retail lending at JPMorgan Chase's auto finance arm. "Not even 5 percent of our business" is for consumers with credit scores of less than 620.