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.[PAGEBREAK]
F&I: You took top honors in J.D. Power and Associates’ annual dealer satisfaction study for prime credit. Will you repeat that feat this year?
Isele: The results are coming out July 28, so put that on your calendar. What the JD Power award did was provide legitimacy to our program and business model in the marketplace. But it’s been a double-edged sword in that it put a lot of pressure on us to maintain that image, and a lot of competition stood up and took notice.
F&I: What were the keys to earning that accolade?
Isele: It’s a combination of things. We have 14 dedicated Alphera sales and marketing managers nationwide and each covers between 60 and 65 dealers on average. What separates us from the competition is the bond our reps have with dealer personnel.
We also provide what I think are key tools and services. For instance, we offer a self-service funding tool called AlpheraPath, which is a Web-based system that gives dealers the ability to fund themselves within 24 hours of keying in some information. It automatically edits and performs an audit on the deal, eliminating contracts in transit.
F&I: Do you offer F&I products?
Isele: Not at this time, but we’re working on it. We just wanted to get our feet on the ground first with our basic products. Offering F&I products is a logical next step, but we want to do it smartly and we want to make sure it’s Alphera branded.
F&I: What about floorplan financing?
Isele: We are a full-spectrum commercial lender, so we have floorplan, real estate, mortgages and term notes. Our finance portfolio is modest now but growing. Now, we also provide floorplanning to independent dealers, which is a new twist for us. We first like to build a relationship on the retail side. Once we have earned the trust and confidence of the dealer, verified their financials and growth plans, we’ll move forward with floorplan financing.
F&I: So, what’s the ultimate goal?
Isele: Well, we really would like to become a captive finance company for an automaker. We’ve entertained companies I can’t share the names of right now, but I believe we have the expertise and the bandwidth to become either a private label financing organization or a captive for an OEM — not a domestic make, but a low-volume import brand.
Quite frankly, there are some strange bedfellows out there between OEMs and banks that are not providing the level of service that is expected. I think the J.D. Power award put us back on the radar, and manufacturers want the service we can provide to their customers.