In 1989, he founded Triad Financial. And after a two-year stint at another independent finance source, Jim Landy is at it again. This time, he’s opened up a new finance company in Irvine, Calif., called CarFinance Capital. It represents a new breed of finance sources that are rising from the ashes of the Great Recession.
F&I: I keep hearing that nonprime remains a problem for dealers. Why is that?
Landy: The market is defrosting a bit, but the problem with nonprime is you need scale, which means you need a lot of capital. That’s not the case with deep subprime. You don’t need scale and you can get to cash-flow neutral a lot sooner. So, that tends to thin out potential partners for the nonprime segment. We’re starting to see a couple of banks drop down into that space a bit, but a dealer needs a few sources to be effective and banks tend to be inconsistent in the category.
F&I: So, where is CarFinance operating?
Landy: We operate where most of the commercial banks stop and the deeper subprime guys begin — in the high 600s to the mid-500s. That represents a third of the market, so it’s a lot of the current traffic at dealerships.
F&I: So, how did it all happen?
Landy: We started in early 2009. And by “we,” I mean myself and Dennis Morris, our chief operating officer. We knew there was a need, so we put our heads together and, by early 2010, leased an office and started putting in full days. At that point, we were building our infrastructure and reaching out to folks we had worked with in the past. But at that point, the capital markets were still closed.
In late 2010, a good friend of mine introduced us to Perella Weinberg Partners, a privately owned asset management and corporate advisory firm. We got along really well and had a similar take on the market. It took a few months to put everything together, then we hit the streets in May.
F&I: In California, correct?
Landy: That’s right. Then we opened in Texas the month after. Right now we have seven reps in California and five in Texas. We’re focused on executing our strategy in those two states, but we expect to be in Arizona, Washington, Oregon and Colorado by the end of the year.
F&I: You mentioned Dennis, a former colleague of yours at Triad. Who else did you bring with you and how much did having your former team in place help when you entered into discussions with Perella?
Landy: It helped a lot. In fact, I would describe the launch of CarFinance as more of a restart of Triad. So, aside from Dennis, there’s John O’Dowd, who was the director of risk at Triad. We also have Jeff Butcher, who served as CFO at Triad. And right now we’re up to 30 employees, 25
to 26 of whom are former Triad employees. So, our team is strong, and there is a lot of continuity.
F&I: How disappointed were you when Triad bowed out of the indirect channel in May 2008?
Landy: We had an outstanding group of people at Triad in 2005 and Ford Motor Credit was a wonderful parent company.
After I left in May 2005, the company ran into some issues in terms of asset quality, which made it difficult for them to make it through the cycle. I think the fact that the servicing platform remains in place says a lot about the team we had. I’m very proud of founding that organization.
F&I: So, what happened, exactly?
Landy: There was some mispricing, but the economic crisis was pretty tough. A lot of it was the mortgage contagion, which gave anything “subprime” a negative connotation. And then you hear “securitization” and it’s like a double negative.
It’s taken a while for folks to realize that there wasn’t one auto securitization where the investor didn’t get paid. I think once people started to understand that not everything tanked like mortgage, things started to improve.
This business is about execution, and I think we’re certainly maturing as an industry in that respect. When we first started in the early ’90s, we had a good idea of how the asset was going to perform, but we really didn’t have a firm idea. We learned a little bit during the 2001 downturn and we learned even more between 2007 and 2009. So, now we have two down cycles of data with which to work.
F&I: What’s your origination target this year, and what’s your current dealer count?
Landy: I would say $100 million this year and about $450 million the following year. As for dealers, we have 350 today and we hope to double or triple that by the end of the year.
F&I: How would you characterize your buying strategy?
Landy: We want to be predictable. We want the dealer to have all the confidence in the world that the customer profile we financed last week will be financed the following week. We’re also focused on funding speed, being flexible and customer service. We know that some dealers are just coming back into the nonprime market, which isn’t an exact science. So, our reps help educate dealership personnel on the nuances of qualifying these customers.
And because I know your readers are focused on F&I as a profit center, I want to let them know that we’ve carved out a ‘back-end’ advance — depending on the tier — of up to $2,000 solely for service contracts and GAP for the F&I office.
F&I: What is your mileage limit?
Landy: Our limit is 80,000 miles. But we’ll be very flexible for dealers who consistently send us customers. So, if you have an eight-year-old vehicle that has 90,000 miles, we’ll help you. But it’s a two-way street.