Auto lender AmeriCredit Corp. has added to and taken away from its recently acquired Long Beach Acceptance Corp. operation in Orange.
Fort Worth, Texas-based AmeriCredit paid $283 million early last year for Long Beach Acceptance, a former unit of mortgage lender ACC Capital Holdings Corp., which went out of business last year.
One of AmeriCredit’s first moves was to combine its own Orange office, which had about 10 people, with Long Beach Acceptance. The company made Long Beach Acceptance’s Orange offices its California headquarters.
But this year AmeriCredit has pared its local operation as the company faces a downturn in auto loans amid rising defaults and uncertainty over Wall Street’s appetite to buy loans packaged as bonds.
Long Beach Acceptance’s Orange office has gone from 185 workers a year ago to about 60 after AmeriCredit moved loan servicing to its Texas headquarters.
More layoffs could be in store after AmeriCredit said in January it plans to reduce its sales force by a third as it cuts back on making loans.
AmeriCredit is the largest independent auto lender to borrowers with less than perfect credit. The company buys loans from auto dealers, mostly for used vehicles. It then bundles them and sells them as bonds to Wall Street investors, using the proceeds to make more loans.
Wary of the Risk
Investors have grown wary of riskier investments since the mortgage collapse and credit crunch that started last year. AmeriCredit had hoped to sell a round of loans this month or next, but hadn’t as of last week.
The company’s last bond sale was in November for $1 billion.
Some analysts warn that the company faces a tough time selling loans.
The company’s already feeling the effects of a downturn.
For the December quarter, AmeriCredit lost $19 million, versus a profit of $95 million a year earlier. Wall Street expects the company’s earnings to fall 63% this year to $116 million.
AmeriCredit’s shares are off more than 60% in the past six months, giving it a recent market value of $1.3 billion.
The company plans to make $5 billion to $6 billion in loans this year, down from $9 billion last year.
It recently moved loan servicing,the collection of payments from borrowers,from Orange to Texas to save money, according to an AmeriCredit spokesman. Long Beach Acceptance employees were offered jobs at other AmeriCredit locations. Seven took the offer, according to the company.
AmeriCredit acquired Long Beach Acceptance to diversify. The company has focused on subprime borrowers, who have low credit scores or maybe a history of late payments or a bankruptcy.
Long Beach Acceptance goes after slightly stronger borrowers, those between subprime and those with the best credit.
In 2006, AmeriCredit paid $64 million to buy Covina’s Bay View Acceptance Corp., which makes auto loans to borrowers with good credit. So far, AmeriCredit has kept Bay Views’ operations in Covina.
AmeriCredit has seen an 18% rise in loan defaults in the past year, which now are about 7% of its portfolio.
Part of the rise was due to the consolidation of loan servicing in Texas, which brought delays in collecting payments, according to the company.
Falling home prices and unemployment have been the biggest factors in the defaults, which are worst in Florida, the Northeast and Southern California.
AmeriCredit has gotten pickier with its loans by going after borrowers with higher credit scores and cutting back on the 14,000 auto dealers it works with.
The company is looking to sell good-credit loans to Wall Street as investors’ appetite for subprime-backed bonds has waned.
“Subprime securitizations are obviously expected to be more difficult due to investor concerns,” AmeriCredit Chief Financial Officer Chris Choate said during a January conference call.
The company also has concerns about the ability of insurers to guaranty its bonds. Premiums on insurance for the bonds have more than tripled from a year earlier, according to the company.
AmeriCredit’s problems aren’t unique. Other auto lenders, including Irvine-based Consumer Portfolio Services Inc., Huntington Beach-based Triad Financial Corp. and Irvine-based United Panam Financial Corp., are in the same boat.
“Nobody is stepping up to take market share,” Choate said.
AmeriCredit also competes with McLean, Va.-based Capital One Financial Corp. and San Francisco’s Wells Fargo & Co.
