Most mainstream manufacturers have their own captive finance company. Dealers swear by them for sticking with auto lending through thick and thin, and manufacturers appreciate the fact that they are usually reliable money makers.
But if captive finance companies are such a great idea, why doesn’t everybody have one?
Size is one reason, auto finance leaders say. It takes a lot of capital to establish even a relatively small captive finance company, let alone maintain it.
But size doesn’t matter so much as the fact that capital investments are a zero-sum game, said Jagdeep Dayal, head of partnerships for Chase Auto. Whatever an automaker spends on one thing, it can’t spend on something else.
Chase performs private-label captive finance services for the Subaru, Jaguar, Land Rover, Maserati, McLaren and Aston Martin brands in the U.S. market.
Dayal said it is a “big, tall order” to set up a captive that requires things such as licensing in all 50 states. And foundationally, not every automaker has the necessary capital or expertise.
“Even for some of the larger OEMs, what is the most efficient deployment of capital?” Dayal said. “To set up a captive finance company? Or to invest it on your core R&D, your core business of products? The answer is different for everybody.”