The county’s two auto financiers of buyers with imperfect credit are back in survival mode.
Consumer Portfolio Services Inc. and United PanAm Financial Corp., both of Irvine, make loans through auto dealers and then package them for sale as bonds to Wall Street.
The companies had a nice run earlier this decade during the finance boom.
But now a loss of appetite from bond buyers has brought business at Consumer Portfolio and United PanAm to a near stall.
Add in a devastated auto market and tighter credit, and things never have been so hard.
Consumer Portfolio and United PanAm went through a bust in 1998 when the crash of the Russian and Asian currencies led to a global freezing of credit and scared investors off anything that seemed remotely risky.
“This time the environment is tougher,” said Robert Riedl, chief investment officer and senior vice president for Consumer Portfolio. “But we’ve done this before. We’ll do it again.”
Consumer Portfolio’s stock has seen wild swings this year and has shrunk by half to a market value last week of $35 million.
United PanAm’s shares are off by about 55% this year with a recent market value of $30 million.
Los Angeles investor Guillermo “Bill” Bron,who made a fortune selling his stake in Spanish-language broadcaster Telemundo Communications Group Inc. to General Electric Co. and Vivendi SA’s NBC Universal Inc. in 2002,owns 40% of United PanAm. He’s the company’s former chairman.
Bond Bust
A big source of business,selling loans as bonds to Wall Street,has dried up for Consumer Portfolio and United PanAm.
This year, Consumer Portfolio has sold $510 million worth of loans, down from $1 billion each in 2006 and 2007.
United PanAm hasn’t sold loans as bonds since November 2007.
In early October, Consumer Portfolio sold $199 million worth of loans to Citigroup Inc. Citigroup bought the loans outright,not as bonds,and gets to keep the interest they generate.
Consumer Portfolio hopes to sell $500 million to $600 million in loans this year, down from an initial forecast of $700 million to $800 million.
The company has made about $400 million in loans this year, versus $1.3 billion for all of 2007.
Consumer Portfolio has been getting by on loan servicing fees and interest earned on its $2 billion loan portfolio.
“We don’t need to sell (loans) anytime soon,” Riedl said.
The company also has gotten more selective with its lending.
Consumer Portfolio is charging dealers 5% more than what it did a year ago. The number of dealers it works with is down to 400 from 425 a year ago.
In July, Consumer Portfolio raised $25 million from Beverly Hills-based private equity firm Levine Leichtman Capital Partners.
It also reworked a $120 million loan with Citigroup. Consumer Portfolio’s $87 million in outstanding debt was paid down to $70 million.
About 200 hundred workers have left the company since the start of the year, mostly through layoffs. Consumer Portfolio employs about 800 people.
Consumer Portfolio and United PanAm compete with AmeriCredit Corp. of Texas, Spain’s Banco Santander Central Hispano SA, McLean, Va.-based Capital One Financial Corp., Salt Lake City-based Prestige Financial Services Inc. and North Carolina’s Regional Acceptance Corp.
United Pan Am
United PanAm, which declined to comment for this story, has seen executive changes.
In August, the company let go of chief executive Ray Thousand and replaced him with Jim Vagim.
Its chief operating officer, Stacy Friederichsen, left to make way for Ravi R. Gandhi, who serves as vice president and chief credit and risk officer.
Vagim comes from Westlake Services Inc., a similar-size subprime auto lender where he was president for 20 years.
At United PanAm, Vagim had to be approved by Deutsche Bank AG or risk losing a $300 million line of credit and having to pay off bonds the investment bank bought from the company.
United PanAm, which works with independent auto dealerships, has been shedding pieces of its businesses and hopes to save $12 million to $15 million from recent cuts.
In the second quarter, United PanAm shut down 22 branches for a total of 36 closures this year. It still has 106 branches.
United PanAm has laid off about 20% of its workforce, or 230 people.
