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All Purchased Plans
Are Updated for 2017

Auto Loan Company SWOT Analysis

 

Strengths

 

Automotive loan companies are always able to remain profitable and cash flow positive due to the fact that cars are expensive. People will always require financing in order to acquire these big ticket items. As such, these companies are able to continually generate income by providing loans to people and businesses that need vehicles. Only in times of severe economic recession do the revenues of auto loan companies decline. A properly managed portfolio of receivables with people of varying credit risk will generally be profitable in most economic climates. Additionally, the loans are backed by the value of the vehicle. As such, when a person defaults - the auto loan company will be able to recoup a substantial amount of the loss through the resale of the vehicle to a third party. The barriers to entry for starting a new automotive loan company are low once the initial capital and lending licensure has been acquired. For a modest sized business, the typical startup costs are $2,000,000. The vast majority of the startup capital is used for the initial loans offered to customers.

 

Weaknesses

 

There is a tremendous amount of competition among automotive loan companies since the advent of the internet. As lending has become more standardized, the interest rates associated with automotive backed loans have decline sharply. As such, these businesses must effectively maintain a very lean operating infrastructure with any excess capital allocated towards marketing expenditures. There are also substantial regulatory issues that must be addressed on an ongoing basis. Finally, when a customer does default on an automotive loan - the costs of recouping the vehicle can be expensive.

 

Opportunities

 

Beyond acquiring additional capital to make loans, the opportunities for most auto loan companies are limited. The primary vehicle for growth within this industry comes from mergers and acquisitions. Once profitable, these companies can often expand very quickly as venture capital and private equity firms are happy to provide the funding necessary for these companies to acquire similar businesses. Additionally, many auto loan companies work with vehicle dealers in order to provide on the spot financing when vehicle purchases are made. Auto loan companies can also divest their loans for a substantial profit to secondary and institutional investors.

 

Threats

                                                                                       

The primary threat faced by auto loan companies are the continued changes in state regulations regarding lending. However, there are currently no known pieces of legislation that would impact the way that these companies conduct business.


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