OneMain pushes further into auto finance with acquisition
OneMain Financial is buying a small auto lender called Foursight Capital, pushing the subprime lender further into the auto finance business.
OneMain, whose main offering is installment loans for consumers with lower credit scores, has been steadily expanding into the credit card and auto lending sectors. The latter efforts would get a boost from its planned acquisition of Foursight, which works with a wide network of car dealers and has a loan portfolio of nearly $1 billion.
Evansville, Indiana-based OneMain said that it is paying $115 million in cash to buy Foursight from Jefferies, an investment bank that has owned the auto lender since 2012. The companies expect the deal to close in the first half of next year, pending customary closing conditions and regulatory approvals.
Doug Shulman, OneMain's CEO, said in a statement Tuesday that the acquisition is part of the company's efforts to "diversify and grow our suite of lending products for hardworking Americans."
"Foursight is an attractive tuck-in acquisition giving us a seasoned team, scalable technology, tested credit models, a franchise dealer network and a high-quality loan portfolio to support our disciplined expansion into the auto lending business," Shulman said.
OneMain has long accepted automobiles as collateral from some customers. Borrowers can qualify for lower rates or obtain larger loans when they use cars as collateral, thereby reducing the risk for OneMain. More than half of OneMain's loans, some of which are made at its storefronts across the country, are secured by cars.
Even before the Foursight acquisition, OneMain was expanding gradually into offering loans to individuals who are buying cars. For now, consumers can get loans directly from OneMain if they buy a car at one of the lender's partner dealers.
Loan receivables from that channel totaled more than $650 million last quarter, Shulman told analysts in October. "We plan to continue to build our auto purchase lending program in a disciplined way," he said.
Foursight's $900 million loan portfolio, while larger than OneMain's quarterly auto loan receivables, would still make up a relatively small chunk of the acquirer's business. OneMain had about $20 billion in net finance receivables during the third quarter, much of that thanks to its bread-and-butter portfolio of personal loan products.
The acquisition would open up a new channel for OneMain: indirect auto loans at large franchise dealers.
Some banks have recently pulled back from indirect auto loans, or loans arranged by dealers' financing departments. But they remain a critical source of financing for car buyers.
Depending on the loans they qualify for, consumers can finance their vehicles from banks, credit unions and other lenders that show up on dealers' screens. Those lenders then buy the credit from the dealerships, taking responsibility for collecting payments from borrowers, as well as shouldering the risk that customers won't repay their loans.
Foursight, which was founded in 2012, offers indirect auto loans through a network of dealers in 38 states. Its roughly 200 employees are expected to join OneMain.
The acquisition, which follows a period of unusually strong consumer credit performance during much of the pandemic, comes as more U.S. consumers are falling behind on their auto loan payments. Some lenders are tightening their underwriting criteria, including by charging higher annual percentage rates.
"While the lending backdrop remains less competitive, allowing for higher APRs, we believe worsening credit trends could continue in the near to intermediate term," Vincent Caintic, an analyst at Stephens, wrote in a recent note to clients.
Shulman, the OneMain CEO, said last month that the company's underwriting standards have remained "rigorous." OneMain has been tightening its underwriting criteria for at least a year to lower the risks of potential losses.
The performance of OneMain's auto loans "has been excellent, far better than comparative industry performance," Shulman said in October.
