As pointed out by BNET auto industry analyst Jim Henry, U.S. auto sales for September fell 26.6% from the year-ago month, due to the credit crisis that's making it harder for some consumers to get auto loans and for automakers to finance their own operations. Operating results at Texas-based AmeriCredit Corp., which has focused predominantly on servicing sub-prime borrowers underscores why it will likely get even more problematic for those folks looking to access car financing. Late payments and loan charge-offs are rising, as indicated in the auto finance lender's annual filing for fiscal 2008:
- Accounts 31 to 60 day delinquencies were 6.0% at June 30, 2008, compared to 5.3% at March 31, and 4.7% last year. Accounts greater than 60 days delinquent were 2.9% at the end of the quarter compared to 2.3% at March 31, 2008, and 2.1% last year.
- The provision for loan losses increased to $1.1 billion for fiscal 2008, or 7.0% of average finance receivables, up from $727.7 million, or 5.3 percent, for fiscal 2007.
- AmeriCredit's stated policy is to charge off an account in the month in which the account becomes 120 days contractually delinquent if the related vehicle was not repossessed. The writedowns totaled $39.8 million and $39.4 million at June 30, 2008 and 2007, respectively.
Chief Executive Dan Berce assured analysts on the year-end earnings call that the company was being aggressive in protecting liquidity by lowering origination levels by two-thirds -- with plans to underwrite about $3 billion in new loans in its current fiscal year -- and that AmeriCredit was on track to achieve an unrestricted cash balance in the range of $300.0 million -- $400.0 million throughout fiscal year 2009.
In my opinion, the company could face liquidity problems in the coming months, with total debt of $14.6 billion running more than seven times shareholder equity and the possibility that two or three asset-backed securitization trusts could potentially trigger margin calls in 2009.
Berse summed up the current credit environment on the call when he said: "I don't think anybody ever thought the capital markets would be in the condition they're in today. So anything can happen in another 15 months -- I guess better or worse."
Could AmeriCredit soon join GMAC Financial Services, HSBC, and Triad Financial-- which have already retrenched from writing high-risk car loans?
This post first appeared in BNET's 10-Q Detective.