General Requesting Loans

General Motors Corp.’s GMAC financial services unit said Tuesday it will sell up to $55 billion worth of U.S. auto loans to Bank of America Corp. over the next five years in a deal to raise cash and help the division finance more vehicles.

Charlotte, N.C.-based Bank of America, the nation’s second-largest bank by assets, will make an initial purchase of $5 billion. In each of the agreement’s five years, Bank of America will purchase up to $10 billion of GMAC’s active U.S. auto-finance contracts.

GMAC will continue to service the contracts. Bank of America will hold the loans and sell them to investors.

Richard Bove of Punk, Ziegel & Co. said in a note to investors that Bank of America probably is paying a premium of up to 13 percent for the loans.

Mark Wasden, a senior analyst at Moody’s Investors Service, said the $55 billion is a fraction of GMAC’s auto-financing assets. GMAC spokeswoman Joanne Krell said the division originates $40 billion in auto loans each year.

“GMAC is not selling its business. The origination and servicing of loans is intact,” Wasden said. “This is an alternative to financing their good-quality assets.”

GMAC, which expects to earn at least $2.5 billion this year, has made more money than its parent GM in the last few years. Last week, GMAC posted net income of $816 million for the second quarter while the overall corporation, led downward by its North American automotive operations, lost $286 million.

But GMAC was hurt in May when Standard & Poor’s Ratings Services and Fitch Ratings downgraded both GM and GMAC’s debt to “junk” status, increasing borrowing costs. The deal with Bank of America will help GMAC as it tries to get its rating upgraded, GMAC said.

“For us, liquidity is oxygen, and it’s critical for us when we’re in this challenged funding environment,” Krell said.

Bove said GMAC needed to make a deal because it couldn’t borrow at an acceptable rate and still offer low-cost loans to GM customers.

“By using Bank of America’s funding rates, GM can remain competitive on the funding it offers to its customers,” Bove said.

Bove said the deal helps Bank of America because auto loans offer higher yields than the bank’s current average yields. It also gives the bank access to a new group of customers, he said.

Wasden said the deal shouldn’t have much impact on GMAC’s bottom line. If the loans perform beyond expectations, Bank of America will see the profits, but if the they underperform, GMAC will be shielded, he said.

“GMAC has been pretty predictable in its asset quality,” Wasden said. “There’s not a huge degree of variability, so from a profit standpoint, I’m not sure it’s going to impact them that much.”

GMAC has grown its portfolio in recent years and has seen rapid expansion of its mortgage and insurance businesses. Auto financing accounted for 77 percent of GMAC’s income in 2002 but just 47 percent last year, Khattri told investors at a recent presentation.

GM shares rose $1.09, or 3 percent, to close at $36.96 on the New York Stock Exchange, while Bank of America shares edged down 13 cents to $44.53.

1 stop car loans is a term you often come across when discussing about auto one finance. This term simply means that your local bank, credit union or car dealer is capable of providing a wide array of products, services, content and other helpful financing information to help you in your vehicle purchasing decisions.

One of the best places to look for companies offering 1 stop vehicle loans is the Internet. Most of these companies can accept a vehicle loan application and match you up with a lender that can come up with a very nice payment or amortization scheme for you to settle your loan. If you do not want to rush and submit a vehicle loan application online, most of these sites will have useful tools for you such as special loan calculators so you can compute your amortization. They also feature helpful loan tips and articles for you to read and be knowledgeable on as well as providing useful links to vehicle interest rate reports specific to your region.

Of course, these sites offer a lot of loan services that aim to entice you choose them in to assist you in purchasing the vehicle you want. This may include car title loan financing, bad credit loan financing, vehicle loan refinancing and more.

Written by: Kathy Marion

San Antonio Federal Credit Union (SACU) is beefing up its automotive loan-processing abilities by investing in a new product that allows car dealers to transmit loan applications to the credit union and receive their funding the same day.

Through DealerTrack, SACU officials say they have found a simpler way to pay out auto loans to dealerships. For credit union members, they have the potential of applying for, receiving approval for and closing the sale of their new vehicle in a much shorter window.

“We are very excited about the added functionality within DealerTrack with eContracting,” SACU First Vice President and Director of Lending Chuck Smith says. “This will help improve efficiencies within our organization and with our dealer base.”

SACU has 400 member dealers in Texas. The San Antonio-based credit union also purchases loans for 16 other credit union partners. SACU is a $1.8 billion credit union with 15 branches in San Antonio and two branches in Houston.

American City Business Journals Inc.

Here’s a look at what could be happening in July 2011:

• We celebrate the 100th anniversary of the electric automobile starter (thank you, Charles Kettering), as well as air conditioning, the Indianapolis 500 and the first group insurance policy, issued in Passaic, N.J.

• If you drop off laundry twice a week, you’ll have lost your claim check exactly 624 times.

• President Clinton will have delivered her 142nd weekly presidential radio address.

• Mrs. Money & Life will unpack the last box from our Florida move, at which point I announce my transfer to the Deming, N.M., Headlight.

• Or, you could make the last payment on a car you buy today.

That’s right, thanks to the ever-innovative financial services industry, American consumers can now take 72 months — six years — to pay off a vehicle. That means a child born on the same day you purchase your new car will start first grade by the time you tear the last coupon out of that little payment book.

Only a few years ago, a 60-month auto loan seemed indulgent, up from the traditional 48-month loan. But even that’s too long, financial advisers say.

“I don’t want them to finance a vehicle for more than three years,” says Keith Southwick, a certified financial planner and owner of StraitGate Financial LLC in Novi.

Instead, Southwick and other planners advise car buyers to use the 3-7 rule: Finance the car for no longer than three years and drive it for seven. But don’t stop making the payment when that first 36 months is up.

Instead, direct that amount to a savings account. By the time Ol’ Blew fries its last gasket, you’ll have enough on hand to pay cash for a new car.

If you’re not completely there, you’ll at least finance a much smaller amount. In that case, set aside the difference between your old, higher payment and the new monthly bill for the first three years, then save the entire amount for the next four. You’ll definitely have enough to pay cash the next time around, Southwick says.

On a $22,000 car with 10 percent down, this would save nearly $5,000 in interest by the time you buy your second car.

More importantly, you’ll make either paying for a car or saving to replace it a permanent part of your budget.

Once buyers retire a car loan, Southwick notes, they tend to spend that money elsewhere. Then, when it’s time for a new set of wheels, they’re forced to find a new source for the cash, often cutting back on saving for retirement, college or emergencies.

“The payment has to be laid on top of their new budget,” he says, “and then they’re struggling.”

The 3-7 rule also pushes you to buy a vehicle that truly fits into your budget since, in most cases, the fancy ride you’d finance for five or six years isn’t the same car you can afford to pay off in three.

The best bet, Southwick says, is to buy a used 2- or 3-year-old vehicle. Even if you can’t drive it for the entire seven years the formula calls for, the plan still works, as long as you keep the car for two years or so after it’s paid off.

Perhaps the best thing about the 3-7 rule is that it helps to make sure you’ll always have money left over to buy one of those bumper stickers that proclaims, “Don’t laugh — It’s paid for!”

It is really a simple concept – you pay off your current auto loan with another car loan that you take from another lender. The difference? The second lender charges a much lower APR (Annual Percentage Rate). The dynamics is that with the new lender with the lower interest rate, your monthly car loan payments are smaller and easier for you to maintain. This makes it more manageable (and quicker) for you to pay off the auto loan in the long run. Once all the calculations are done, you’ll realize that you can save thousands of dollars through that magic word called ‘refinancing’.

The 9th interest rate increase in a year was widely expected to be the last, but it’s unlikely to be. Here’s how you can expect car loans to react.

Rates for new- and used-car loans are fixed-rate loans and will only impact new borrowers, not existing borrowers. Much of the impact of an interest rate hike is seen before a Fed move, as car loans are increasingly responding to yields on Treasury securities instead of being pegged to the prime rate. This is because lenders are packaging auto loans together and selling them into the secondary market, as is often done with mortgages. The good news for borrowers is that even though short-term interest rates have increased considerably, yields on Treasury securities have increased much more modestly. Even though the prime rate has increased from 4% to 6% in the past year, the average three-year Treasury yield has only increased from 3.25% to 3.65%. Accordingly, the average four-year new-car-loan rate has increased from 7.43% one year ago to 7.84% now. The average three-year used-car-loan rate has moved only slightly higher, from 8.46% to 8.53% in the same period of time. At credit unions, the average rates have nudged higher from 5.35% to 5.49% on new cars and from 5.5% to 5.66% on used cars.

A ward in Tokyo has decided to give children crime prevention cell phones to alert adults if they are in danger.

Models of the egg-shaped phones arrived Friday morning at Shimizudai Elementary School, which is acting as a model school in the program, and an explanation of how to use them was given to 104 students, the Mainichi Shimbun reported.

The ward will check the alert system of the phones next week and supply them to all 12,000 elementary school students in the ward within this year.

The system utilizes the support of about 2,000 registered stores, taxi companies and other businesses. When a pin is pulled out of the phone, the location of the child is sent by phone or e-mail to the child’s parents or guardians and the 20 nearest registered supporters, allowing them to rush to the scene.

I hope that none of (the children) has to pull out these pins, said the school’s principal Ryuji Kamura. I hope the devices rather act as ‘charms’ to ward off crimes.

So you want to buy a car. Maybe it’s an older car, and maybe your credit history is not so good. If you went to a typical bank, the people there might not be too helpful in giving you a loan. Rest assured, there are other options. This is where Nicholas Financial (NICK) comes in. NICK provides financing programs for people who meet the company’s own credit standards, but might not be so popular at the local bank or credit union. NICK came to light on the Reuters Select stock screen in the Growth category for Accelerating EPS Growth, and, as such, it fits in nicely with this week’s Reuters Select Top Down article series, which examines companies in the Finance sector.

Financial Highlights

NICK’s revenue and EPS growth rates easily surpass the Industry averages over both the last five years and trailing twelve-month (TTM) periods. Further, as the Industry has experienced a decline in the rate of growth of late, from its longer-term average, the company has actually seen its growth rate accelerate. Further, it has improved upon its already superior profit margins.

Regarding its valuation, NICK is currently priced at a premium to the Industry on the basis of price to earnings (P/E), P/Sales, and P/Cash Flow. It is trading a discount to its peers on the basis of P/Book Value and P/Tangible Book Value. NICK’s PEG (forward P/E relative to long-term EPS growth rate) ratios are below parity, indicating that the stock is currently priced at a level that even some of the most Value-oriented investors can find appealing.

Some Background

NICK operates in the Consumer Financial Services industry. It provides loans to consumers, but the company is also involved in acquiring and servicing retail sales contracts for automobile dealers for used and new cars and light trucks. The company provides financing programs, primarily for those who buy new and used cars and light trucks who meet its credit standards, but who do not necessarily meet the credit standards of traditional lenders, such as banks and credit unions. The key aspect here is that the company deals with individuals of a certain credit worthiness that other institutions would probably avoid. But, the differences don’t end there. Figure, banks generally don’t make loans for cars that old or have above a certain amount of mileage on them. That’s fine, because NICK covers that territory as well.

Whereas banks and similar financial institutions might focus on credit history, that is only part of the equation with NICK, which also takes into consideration factors such as place and length of residence, employment status, and personal history regarding installment payments on auto loans. As such, even though somebody might not qualify for a typical bank loan, they can get a green light from NICK.

The company’s focus on this segment of the market has paid off very well, and NICK has expanded it reach. NICK has a total of about 36 branches in Florida, Georgia, both North and South Carolina, Virginia, Ohio, Michigan and Kentucky. Recently, NICK broke into Indiana, opening up a branch in Indianapolis. Each branch is set up to deal with up to 1,000 accounts for a total of about $7.5 million.

The combination of strong demand for this level of financing and the company’s protracted geographic expansion has contributed to its superior revenue growth.

More specifically, over the last five years, NICK’s top line expanded at an average annual rate of 18.46%, much faster than the Industry average of 13.39%. In the TTM period, as growth in the overall Industry eased to 2.77%, NICK’s revenue climbed 28.75%.

Margins & Earnings

The company’s recent performance benefited from several key factors, opening new branches is only one of them, as this helped enlarge the company’s loan portfolio. A general improvement in overall credit quality has also enhanced performance, as interest payments are being made on a larger percentage of loans.

Higher levels of revenue have helped the company improve its profit margins. Sure, the overall Industry has been trending in this direction, but NICK has profit margins that make many of its peers jealous.

For example, over the last five years, the Industry’s average Operating Profit Margin was 20.72%; in the TTM span, it stood at 24.00%. By comparison, NICK’s Operating Margin averaged 33.10% over the long haul, and rose o 39.94% more recently. We see that same type of dynamics at the bottom line. Start with the Industry’s Net Profit Margin, which has a five-year mean of 14.07%, but a TTM reading of 16.73%. Now, jump over to NICK, which has a long-term average of 20.56%, but a TTM Net Margin of 24.61%.

Not surprisingly, NICK has been able to accelerate its rate of EPS growth, while the overall Industry, amid a deceleration in its rate of revenue advances, has slowed.

Over the last five years, the Industry’s average annual rate of EPS growth stood at 16.26%. In the TTM span, EPS climbed 9.89%. For NICK, though, good business has meant good earnings. Over the long haul, its EPS has climbed at an average annual rate of 19.03%. And, for the TTM span, its EPS stands fully 24.56% above its year-earlier level.

Other Thoughts

So, we are looking at a company that has been expanding its business, lengthening its geographic reach, and growing overall. The question now becomes, what does this cost? Well, if we look at the company’s TTM performance, such as EPS, revenue, and cash flow, in relation to its current stock price, one would say that NICK is priced at a premium to its peers.

After all, its P/E is currently 15.92 versus the Industry norm of 14.30; its P/Sales is 3.90 against the 2.39 mean of its peers; and its P/Cash Flow is 15.54, compared with the Industry’s 12.65.

There are a couple of valuation metrics, such as P/Book Value, by which NICK comes across as a bit cheaper. But, since stocks are valued on the basis of future earnings, we would be well served to consider analyst expectations about the company’s prospects. Unfortunately, there is only one analyst currently providing estimates to Reuters. Generally, we like to see more, but sometimes you just have to go with what you have. The analyst is looking for EPS advances going forward, and believes that NICK can achieve an annual long-term EPS growth rate of 15.00% going forward.

Based on EPS estimates, NICK is currently trading at forward P/E ratios of 13.22 and 11.52 for 2006 and 2007, respectively. Dividing by the long-term EPS growth rate, NICK has PEG ratios of about 0.88 and 0.77, respectively. Lower PEG ratios represent better bargains, and numbers below 1.00 are particularly attractive. Of course, remember that we are working with only person’s estimates here.

In short, it seems like NICK is a Growth play that even some of the most Value-oriented investors can find appealing. But, there is another aspect here that warrants some consideration: NICK is largely ignored by Wall Street. There is only one analyst covering it, and institutional ownership is very low (16.81% versus the Industry average of 62.21%). Thus, NICK will likely also appeal to investors looking for those little-known stories.

* Approach your purchase as three separate transactions.

Buying a car usually involves three different transactions and it’s best to treat each of them separately; 1) financing; 2) trade-in; and 3) vehicle purchase. This strategy will help isolate each act, keeping them clear and simple, while maximizing your negotiating opportunities.

* Weigh your purchase incentive options.

Many auto manufacturers will offer a choice between a cash rebate or a discounted financing rate as a purchase incentive, but usually not both. Even if you’re among the minority who qualifies for a 0-percent rate, don’t assume it provides the most savings. Sometimes you’ll come out ahead by applying the rebate to the purchase price and using your own low interest rate loan. Bring a calculator or laptop to the dealer to see which option is best for you.

* Match length of loan to expected length of ownership.

Select your loan term based on how long you plan to own the vehicle. Buyers who take out longer-term loans to keep their monthly payment low can find themselves “upside down” on their loan — that is, owing more money on the car than it’s worth in trade when it’s time for a new car.

* Take your time reviewing the contract.

Don’t put pen to paper until you know the following: your interest rate, monthly payment, amount you are financing, the length of your loan and your trade-in value. Also, make sure unwanted after-market “extras” haven’t been added to the deal.

Southfield auto lender Credit Acceptance Corp. announced plans to restate its financial results, possibly as far back as when it went public in 1992, following a regulatory review of its accounting policies.

The process could take at least six months, the company said in a statement released Friday. Credit Acceptance will have to delay filing its 2004 audited annual report, which could result in its stock being delisted from the Nasdaq stock market.

The company also said it has dismissed accounting firm Deloitte & Touche LLP, its auditor since 1998. Deloitte had refused to sign off on Credit Acceptance’s 2004 financial results unless the company changed its accounting methods, even though the accountant had approved that method for six years. The accountant’s position led Credit Acceptance to seek an opinion from the U.S. Securities and Exchange Commission, which regulates publicly traded companies.

The SEC agreed with the auditor that Credit Acceptance should change its policies.

At issue is the way Credit Acceptance accounts for its loans. The company provides auto loans to consumers regardless of their credit history. The loans are sold through a network of dealer partners, who immediately assign the loans to Credit Acceptance. The dealers receive compensation, called an advance, when the loan originates.

Since going public, Credit Acceptance has accounted for that business as the original lender to consumers, based on the recommendation of its accountants, the company says. But last year Deloitte & Touche decided Credit Acceptance should change its accounting.

The SEC ruled the company should classify itself as a loan-service provider rather than a loan originator.

“The company is optimistic that the required revisions to its accounting policies, while time-consuming and costly, will improve its ability to clearly communicate the company’s financial performance to shareholders,” Credit Acceptance said in its statement.