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The Untapped Market

The bankruptcy segment is growing by leaps and bounds, and insiders say there’s a group of lenders just waiting to help dealers cash in on this niche market.

December 2010, F&I and Showroom - Feature

by Gregory Arroyo - Also by this author

Phil Long Ford’s Diana Winston currently rolls about 45 special finance deals a month, half of which are for BK customers.

With subprime auto loan approvals seemingly stuck at two-year lows, it seems unfathomable that a market exists for bankruptcy customers. Those in the know, however, say not only is there a market for BK customers, but some lenders often view the segment as the cream of the growing crop of special finance.

“The bankruptcy credit customer — at least, how I was taught, and the way the lending institutions I worked for looked at them — was a little more of the cream of the mud, if you will,” says Robert Davies, who worked as a credit analyst and underwriter before becoming president of “That’s because these customers are motivated and their woes are basically behind them.”

Fair Isaac Co. calculated that there are more than a quarter of a million consumers in the United States who now claim FICO scores of 599 or less. Additionally, bankruptcy filings are breaking records almost every quarter, with the American Bankruptcy Institute expecting nearly 1.6 million new filings by the end of the year.

But for those who buy into a recent CNW Research statistic that showed subprime auto loan approvals still far below the 27 percent approval rate posted in 2008, Diana Winston issues this challenge: “Just come sit in my office for a day.”

As special finance manager at Phil Long Ford in Littleton, Colo., part of an 18-dealership group, Winston is currently rolling about 45 special finance deals a month. Half of those are for customers with a bankruptcy or foreclosure on their record.

“Special finance is alive and well,” says Winston, who works with eight lenders, including Santander, Ameri-Credit, Capital One and Chase Custom.

Opportunities Abound

Davies says Winston, a loyal user of, represents a growing number of dealers who are cashing in on the bankruptcy segment. In fact, 90 percent of’s business, which offers several levels of bankruptcy marketing services that typically cost between $5,000 and $7,000, is currently with franchised dealers.

“Think about it, the average amount financed out there in the subprime market is between $14,000 and $15,000,” he says. “Well, there are a lot of program cars franchised dealers have access to that meet that parameter.”

In September, Davies’ company struck a marketing deal with Friendly Finance Corp. that just about guarantees dealers who sign up will have a lender to finance their bankruptcy customers.

“Friendly is stepping up and buying this little advertising campaign for their dealers,” says Davies. “We feel that there’s a lot of potential here, and we’re trying to make it as easy as possible for the dealer. We’re providing them with a way to fund these contracts in a way that they haven’t been able to fund them in the past.”

Davies is referring to the fact that Friendly, a regional lender that operates in 12 states, will fund a contract on a Chapter 7 bankruptcy customer before his or her 341 meeting, which typically occurs 30 days after the filing and requires the filer to testify to the state of his or her finances. Most lenders will begin approving customers for loans only after the meeting.

“We made that change a couple of months ago,” says Steven Pittler, the finance company’s president. “On Chapter 13s, [the filer] only needs to be confirmed for three months. We do, however, require trustee approval on open 13s.”

To take part in the program, dealers must first sign up with Friendly to gain access to Davies’ mailing list of potential Chapter 7 and 13 bankruptcy customers. All the dealer has to do is provide a list of ZIP codes and direction as to where in the bankruptcy process they want to target customers. will then create a mailer, which dealers can send out on their own letterhead.

“This is a big deal for us,” Pittler says, adding that his company will consider 2004 model-year vehicles and up with less than 80,000 miles. “It provides an easy way for dealers to take on this huge demographic of potential customers.”

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