OVERDRIVE:
Auto Financier WFS Grows Into Top-10 Fueled By Low Interest Rates
By RAJIV VYAS
Low interest rates helped propel Irvine auto financier WFS Financial Inc. into the top 10 of Orange County’s fastest-growing companies in the past three years.
Last year, WFS ranked No. 12 on the Business Journal’s list.
A 198% rise in revenue during the period was good for the No. 10 slot on the list,just ahead of Irvine chipmaker Broadcom Corp. with a 168% gain.
For the 12 months ended June 30, WFS counted $781 million in revenue, nearly three times the year-ago period’s $262 million.
And WFS continues to grow: On Oct. 16, the company reported third-quarter revenue of $155 million, up 45% from a year earlier.
Net income for the September quarter was $23.3 million, up 150%.
“From the revenue side, we have had consistent growth over the past six years,” said Thomas Wolfe, WFS Financial’s chief executive.
WFS Financial lends money to used car buyers with good credit. The company makes and buys loans through a network of some 7,500 new and used auto dealers.
California makes up about 40% of WFS Financial’s business. The competition: the finance arms of automakers.
In the past three years, the company says it has gained market share and beefed up ties with dealers.
In 2001, WFS Financial originated loans worth $4.9 billion, a 17% rise from 2000’s $4.2 billion.
At the end of last year, WFS Financial managed a portfolio of more than $8.2 billion in loans.
But WFS Financial has seen some slowing in sales growth and lower profits because of the weakening economy. And it’s hedging more against bad loans.
The company’s provision for credit losses was $63 million in the third quarter, up from $41.2 million a year earlier.
“We have seen an increase in nonperforming loans in line with the weak economy and the drop in used car prices,” Wolfe said.
Used car prices have dropped as automakers have given rebates or offered zero percent financing on new models.
The result: the value of vehicles WFS Financial reposes are worth less.
Still, Wolfe said, “We have the best balance sheet that we have had. We are originating better and better quality loans.”
WFS Financial is 85% owned by Irvine-based Westcorp Inc. through Western Financial Bank. Westcorp itself ranks No. 15 on this year’s list with three-year revenue growth of 146%.
WFS Financial accounted for most of Westcorp’s growth.
In July, Westcorp announced plans to buy the remainder of WFS Financial. Shortly after, notorious litigator William Lerach of San Diego’s Milberg Weiss Bershad Hynes & Lerach LLP filed a class action lawsuit against WFS Financial and its board of directors.
The lawsuit alleged WFS Financial and its directors used improper means to seek the buyout and that preferential treatment was provided to certain insiders and directors at the expense of shareholders.
In October, Westcorp withdrew its offer but said Lerach had nothing to do with it. The two companies couldn’t come to an agreement, Westcorp said.
The showdown pitted two prominent San Diegans against each other. Ernest Rady, who’s from La Jolla by way of Canada, owns more than two-thirds of Westcorp.
WFS Financial employs about 520 people in OC, up 8% from a year earlier.
In all, the company counts 2,050 workers, also up 8% from a year earlier.
