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Alphera Wants to Make Auto Loans as a Captive

Alphera Financial Services is feeling a little freer these days. In fact, according to the company’s top exec, becoming a captive is a real possibility for the five-year-old company.

July 2011, F&I and Showroom - Feature

by Gregory Arroyo - Also by this author

Founded in 2006, Alphera Financial Services has operated under the radar, quietly expanding its portfolio and growing its dealer count in the shadow of BMW Financial Services. The shroud is now coming off, at least according to Fred Isele. In fact, Alphera’s president reveals that his management team is eyeing several opportunities to become a captive finance company.

F&I: Talk about the down-turn and how it impacted your operations.

Isele: Like everyone, we were affected by the credit crunch and the lack of liquidity, however, we did not exit the marketplace. We bumped our credit profile up to a 700 FICO for about three or four months during the credit crunch and then dropped it down to 670. Now we’re buying 650 and up.

F&I: Things were better last year, I take it.

Isele: It was a great year for us in terms of profitability and volume. This year we’re ahead of our volume target, profitability is exceeding our plan, and credit losses are below forecast. So we’re going to hit our volume projections this year, but if it comes down to volume or profitability, we’ll choose profitability.

F&I: You guys have kind of operated under the radar, haven’t you?

Isele: When we first came to market, we were only allowed to sell the Alphera name. The fact that we were a division of BMW was totally hush-hush. What we found pretty quickly was that saying we’re a division of BMW actually helped us when we were in front of dealers.

We also operated with some restrictions in those first six months of our founding. We were only allowed to sign dealers who had a BMW store within their corporate entity, which hindered us. We only had 340 BMW stores here in the United States. But once we got our foot in the door, the shackles were lifted and we were able to sign any new-car franchised dealer.

F&I: So what’s your dealer count at today?

Isele: We have about 875 dealers here in the continental United States and we cover all brands. And to make a separation, we’re parallel to BMW Financial Services, which covers BMW Group products, including new and used, motorcycles, Mini and Rolls-Royce. We basically finance everything else, from Kia’s to Maseratis.

F&I: Are you looking to sign more dealers?

Isele: Not necessarily. However, we are looking to add to our headcount in 2012. As that happens, we could see our dealer count climb to 1,000. The key for us is we want to be exclusive, which is a key selling point for us.

F&I: What customer or vehicle profile are you looking to finance?

Isele: We’ve redefined ourselves. We really bought down into subprime when we first came to market, but we found, as others did, that it takes a significant amount of energy to collect that business. As a result we  decided to move toward a more luxury experience.

Right now we’re about 70 percent used and our mileage ceiling is 90,000 miles at inception. The reason our used percentage is so high is we’re not going to compete against the new-car rates offered by captive finance companies. We’re not out there to be the cheapest game in town, but we won’t shy away from a deal that makes sense.

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