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.
The prolonged window provided to financing operations thanks to cheap credit from the Fed has fostered a new renaissance of auto sales in the U.S., with automakers producing as many cars as they did before the global financial crisis.
Automakers' captive finance units, which they use to provide credit to borrowers, also took more of the auto finance market, as both banks and big auto companies nudged "buy here, pay here" in-dealership financing options further out of the market. The BHPH lenders lost nearly 10 percent of their share of the market year over year, according to the Experian report.
Read MoreAre warning lights flashing for auto profits?
Plenty of automotive finance firms are seeking to build up a roster of sales and compliance professionals, judging by job openings recently posted on LinkedIn. These include Wells Fargo, which, according to Experian, has become the biggest lender to used car buyers. In its annual report released last month, highlighting "record originations in 2015," Wells Fargo reported more than $31 billion in auto loans.
JPMorgan expanded its auto loans portfolio by about 10 percent, to more than $60 billion in 2015, the bank's annual report said. And a recent Reuters article highlighted a substantial rise in lending for automotive buyers coming from Bank of America, which has also boosted staffing in auto lending. A representative for the company said Bank of America plans to continue expand loan originations in 2016, but declined to provide specifics. Capital One, as well, grew loans held for investment by about 15 percent from 2014 to 2015, the bank said in its annual report.
But automakers' financing operations have been giving banks a run for their money, and, for customers.
Banks' participation in used car lending has increased in part because of automakers' captive finance units being able to capture point of sale loans thanks to monetary policy that has created years' worth of low interest rates. In its fourth-quarter earnings report, General Motors' finance arm noted it "now provides substantially all of the financing on vehicles leased by our customers." GM Financial's total net sales and revenue rose 33 percent over the course of 2015, to more than $6.4 billion, the automaker's earnings report said.
Ford, too, in its most recent annual report said it has increased lending, and added 16 percent more staff in its captive finance unit, which now has about 7,000 employees. Staffing up to claim more new car loan originations will pit Wall Street against the Motor City.
Read MoreLeasing hits record high in the fourth quarter
"They force the banks to deal with foreign cars or the used auto market," said Dick Bove, vice president of equity research at Rafferty Capital Markets.
For some banks, like JPMorgan, this has translated into an opportunity to work with partners that do not have captive finance arms in the U.S. This includes brands like Land Rover, Subaru and Jaguar, Jackson said.
