AutoNation slowly integrates captive CIG

Captives are typically profit centers for automakers, though Fiat Chrysler, which Manley led as CEO for two and a half years, didn’t have one.

AutoNation used to have a finance unit, but it was losing money when then-CEO Mike Jackson pulled the plug in 2001. It considered restarting a captive finance company in 2014, but a year later dropped the plans with Jackson citing cost, return on investment, scale and competition as the reasons against it.

Starting a captive from scratch is extremely costly. Other hurdles include staffing needs, acquiring state lending licenses and investors’ reluctance to buy bundles of auto loans until a lender establishes a history.

For those reasons and others, it makes sense for a national group to turn an existing lender into a captive.

“The plan is to be very deliberate and slow with the growth,” Chin told Automotive News of AutoNation’s plans for the captive.

“It will grow with AutoNation USA. They don’t expect [CIG Financial] to be material until 2024.”

A captive finance company can be a great growth-driver, Chin points out, just as it is for publicly held used-car retailer CarMax. The CarMax Auto Finance arm provides as much as 40 percent of CarMax’s total income.

But Chin pointed out that although a captive has the potential to drive additional used-car sales by offering financing to customers with lower credit scores, this can pose a risk — especially because U.S. auto loan delinquencies are on the rise.

“Investors don’t like to see that,” Chin said.

Lithia Motors started its captive finance company, Driveway Finance Corp., in 2011. According to Chin, Lithia is growing Driveway quickly, and CarMax Auto Finance, which has been operating for about 30 years, is on track to generate about $800 million in income this year.

“Consumer credit has been very strong,” Chin said. “Losses and delinquencies have been unusually low. We’re at the point in the cycle where all that is set to normalize.