The Industry's Leading Source For F&I, Sales And Technology

Special Finance®

DealerTrack Sees Credit Markets Improving; Uptick in Subprime Activity

February 26, 2010

Responding to a question about whether the pickup in activity among captive lenders during the second half of the year was the driving force behind DealerTrack’s deal with GMAC, Mark O’Neil, the company’s chief executive, said the timing of the Jan. 10 announcement was only coincidental.

Speaking during the company’s fourth-quarter investor call on Feb. 23, O’Neil said that the Cash for Clunkers program reenergized the new-vehicle market, boosting market share for new retail and lease finance units for captives not on its platform by 10 percent. It was one of the reasons why DealerTrack’s transaction revenue experienced a $5.2 million decrease, with O’Neil attributing the decline to a weak used-car market during the period and credit unions pulling back. The company ended the year with $20.2 million in transaction revenues.

“The good news now is used cars are going strong, which they weren’t in the fourth quarter because of Cash for Clunkers. If the captives and new cars get strong, we now have a terrific representation with our existing captives, plus GMAC,” noted O’Neil, who said the company processed 10.1 million transactions in the fourth quarter, down from 13.8 million in the fourth quarter 2009. “Basically, we’ve improved the long-term position of the company to take advantage of virtually any trend in the auto industry, and that’s why we did the deal.”

Overall, O’Neil said that despite revenues in the quarter falling from $54.7 million to $53.2 million, the company ended the year on solid ground thanks to its cost-cutting efforts. And aside from dynamics in the indirect lending market, O’Neil attributed the revenue decline to increasing fleet sales vs. retail sales and an increase in cash deals.

Net losses for the quarter were $700,000. For the full year, company revenues came in at $225.6 million, a decrease from the $242.7 million reported in 2008. O’Neil said the company expects revenues to be between $240 million and $246 million this year, with net income expected to be between $2 million and $4 million.

The company also ended the year with 823 finance sources on it network, with O’Neil saying the company added 48 new sources (19 credit unions, 23 finance sources, four banks and two captives) during the quarter. The software maker, however, lost 15 sources due to closures or departures from the industry.

As for dealers, the company said it lost 551 dealers from September 2009 and 2,926 from December 2008, ending the year with 16,690 active dealers on it network. O’Neil said he expects further contraction as GM and Chrysler continue their dealer closure initiatives.

The company also reported that the number of unique applicants seeking financing on its network declined compared to the prior quarter, which he attributed to the Cash for Clunkers program. Additionally, the number of submissions per unique application was up slightly compared to the prior period, with O’Neil predicting that 2010 submissions per unique application will mirror 2009 levels.

Lender-to-deal relationships, which O’Neil said has become a less relevant indicator of market conditions due to the number of dealership closures, decreased slightly from the third quarter to 118,000. However, that number improved to approximately 120,000 in January, which O’Neil said could be a sign of improving subprime activity. He added that the company has seen typical seasonal strength of subprime activity in January due to income tax refunds.

“Several of our larger lenders have stated that they expect to grow in excess of 20 percent in 2010, which supports our belief that we’re starting to see signs that the credit markets are improving,” said O’Neil.

For its subscription products, DealerTrack reported that average monthly subscription revenue per subscribing dealer rose slightly to $695 from $692 in the prior quarter and from $595 in the fourth quarter 2008. O’Neil said the company expects that number to increase to $789 per month by the end of 2010, driven mainly by its AAX inventory management system – which he estimates has a 20 percent share of the market. He added that the company’s dealership management system has a 10 percent share of the market.

The one thing that could stunt subscription growth in the near term is further dealership closures, although O’Neil said he believes the majority of closures have already occurred. For the end-of-year quarter, economic conditions and dealership closures resulted in 107 fewer subscriptions, with the company ending the year with 13,852 subscribing dealers.

The company also is betting on its recent deal with a GMAC to provide a boost in subscriptions. Announced just days before the start of the National Automobile Dealers Association’s annual convention, the agreement included a one-time payment to GMAC of $15 million. O’Neil said the payment did not relate specifically to credit application pricing, preferencing or volume, and stressed that DealerTrack will remain agnostic when it comes to lenders on its platform. Instead, he said, the payment relates to a broader strategic relationship between the two companies.

“We now have a more compelling value proposition to offer the over 6,000 GM and Chrysler dealers for our subscription products,” noted O’Neil, who expects integration with GMAC to be completed by the end of summer. “So, you can now start to see why we believe the return on this investment is substantial over the long-term.”

Your Comment

Please note that comments may be moderated. 
Leave this field empty:
Your Name:  
Your Email:  

CLOSE [X]

READ NEXT

Protective and MAPFRE Form Partnership

The Asset Protection Division of Protective Life Insurance Company, a wholly-owned subsidiary of Protective Life Corporation, has formed a partnership with MAPFRE Asistencia, a subsidiary of MAPFRE S.A.