Pressured by consumer credit concerns and the impact of a growing market for zero-percent (subvention) auto loans, independent lender and annual ABS issuer AutoNation Inc. is currently debating whether or not to exit the auto-lending business, sources close to the situation said.

While the company reported as much in its most recent 10-Q filing, a company official indicated that a formal announcement is expected as soon as early 2002.

However, AutoNation's exit from the loan origination business is being viewed by some as a potential positive, as the company's refusal to offer low-rate incentives and its desire to remain profitable might make the decision a logical one.

Low-to-no interest loans, or subvention loans, have been the main driver of new-car sales for captive lenders since the Sept. 11 attacks (see ASR 10/15/01 p.8). While new-car sales have actually been up since then, such loans have stolen market share from the finance businesses of companies such as AutoNation; although captive lenders exist solely to stimulate sales and therefore production, AutoNation refuses to offer loss-leading loans for the sake of increasing sales.

"As an independent finance company, we are not in business strictly to move metal, and you have to profit from your loans. We absolutely refuse to compete with subvening zero-percent loans," an official from AutoNation told ASR last week.

Cited from the most recent quarterly filing: "The rate at which the Company is originating loans has slowed during 2001 due to the implementation of more restrictive credit policies and, more recently, unprecedented levels of financing incentives being offered by vehicle manufacturers. As such, the Company is currently considering strategic alternatives to its consumer loan origination business."

Market insiders concur, with one source familiar with the situation saying: "AutoNation has some decisions to make. Maybe it doesn't make sense to finance in this environment and maybe it should just sell cars and let others handle the financing."

Noting the company's very profitable secondary repair service and warrantee operations, a decision to exit the loan-origination aspect of its business was even viewed by one source as a "potentially smart strategic move."

As for outstanding ABS issued by the company, little impact is seen should the company cease lending activity. Although AutoNation is listed as the master servicer on its securitizations, World Omni Financial is contracted to do the actual work.

The company states in the term sheet for its most recent offering, "AutoNation Financial Services Corp. has established a comprehensive set of collection policies and procedures, the application of which are performed by World Omni Financial Corp. pursuant to a subservicing agreement."

"The subservicing agreement is the one mitigating factor in this equation. With no change in servicers, should they decide to cease lending, it would have little impact on the outstanding paper," the insider theorized.

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