The year 2008 will go down in subprime auto finance history as one marked by high gas prices, frozen credit markets and a stifling lack of liquidity. Like their counterparts on the retail side, lenders have worked hard to adapt to the changing economic client and stay in business. But despite the adversity, most are still in the game and many are expanding their programs. We asked executives what topics would be on their minds at this year’s show.
Scott McKoin, managing director of sales, CitiFinancial Auto: “There are opportunities that exist even in these turbulent times, and that’s what I hope will drive discussions at NADA 2009. There continues to be a lot of movement among lenders and dealers alike. Both dealers and lenders should be setting solid expectations for what they need from each other, so together we can maximize the opportunities that emerge from the evolution our industry is experiencing.”
Bill Jensen, national custom executive, Chase Auto Finance:
“I don’t think there is any question that the state of the U.S. economy and how it is impacting the auto industry will be on the top of everyone’s list of items to discuss at NADA. As we do every year, Chase Auto Finance is preparing to meet with our major clients and discuss business plans for the upcoming year, and how Chase can play a proactive role in their goals and objectives for 2009.”
Paul Kerwin, CFO, Westlake Financial Services: “We’ve been receiving positive feedback from recently signed franchise dealerships. They are recognizing that the unique flexibility in the Westlake Buy Program is enabling them to keep customers in their stores instead of having to turn people away. The added platforms that we will soon introduce will make it easier for us to service our dealers and increase our franchise penetration, one of our goals for 2009. Westlake is focused on getting our name out to the marketplace, considering our financial strength and our long-term growth strategy. Now is a good opportunity to tell dealers that Westlake is always there for them despite economic conditions or the state of the used-car market.”
Mike James, vice president of strategic initiatives, lending
and training, CUDL: “Credit unions, in general, will be a talking point at NADA. They have the funds, and they’re going to be telling dealers, ‘We’re here, and we’ve always been here.’ I think dealers will be excited about making those connections. Credit unions can help by sending their members to the dealerships they partner with. Nobody else out there does that. We’re currently expanding MAFS Advantage, the program we started with Manheim Financial Services, to help create more of those connections.”
Steven Pittler, president, Friendly Finance Corp.: “We believe that, for most subprime lenders, the current outlook will get worse in the near term, and then gradually improve beginning in the third quarter of 2009. Dealers can expect lower advances and increased requirements from their lenders as they deal with increased delinquency and charge-offs. Lenders should expect increased repossessions and plunging auction prices on those repossessions. For the next several precarious months, many subprime lenders will alter their infrastructures, cut loan originations and struggle to survive, while the prudent ones will take advantage of their successful business models and exploit the many opportunities this market has created.”
John Butler, executive vice president, Great Direct Concepts/AutoLending Network: “Right now, structuring each deal properly and putting the right customer in the right car are keys to securing approvals for both dealers and lenders. Dealers are talking about our newest software tool, Desk It. It will eliminate out-of-structure issues and maximize both front- and back-end gross, all according to lender approvals and guidelines. Our slogan is ‘Every Dime, Every Deal, Every Time.’”
Lee Domingue, CEO, AppOne: “Liquidity, liquidity, liquidity. It’s the issue on everyone’s minds. The next 12–18 months will likely be challenging because there might not be much available capital for subprime lending — it will most likely be used for nearprime and prime credit. There will also be a lot of focus on consolidation as strong, well-positioned lenders look to buy troubled lenders. And with the convention falling just days after the presidential inauguration, there will definitely be discussions on what the new administration will bring and how the regulatory environment could be affected.”
Mike Sheridan, president, Global Debt Network Automotive (GDNAuto): “On the portfolio side, we’ve seen the market turn quickly. A year ago, it was a seller’s market. New and established buyers will be buying at a deeper discount than in the past, because they are projecting much higher delinquency and default rates in the next 12 to 36 months. On the financial institution side, many of those firms are struggling with their own capital structure. Credit unions are getting aggressive, and they are filling the nonprime funding gap. Dealers and portfolio buyers are going to be talking about how credit unions are emerging in this market and the challenges that credit unions face. That includes their pricing of the risk and portfolio servicing involved in the nonprime world.”
Larry Murray, COO, Virtual Lending Source LLC: “We expect our booth to be the buzz of the show. In addition to our new high-interest discount loan program for seriously credit-challenged buyers, we’re introducing a new mailer called SpeakerMail, which has been getting fantastic results. It comes with an audio greeting. When you open it, it says ‘Congratulations! You’ve been approved for an auto loan up to $40,000!’ and it can be customized to the dealership. It works for sales, service and holiday or birthday greetings — whatever works for the dealer. As business begins to come back, I predict this will be the hottest product on the market.”
Kevin Kopp, director of indirect lending, Wolters Kluwer Financial Services: “I think the conversations will likely revolve around three topics, with the first being funding. Many lenders are struggling to find funding sources for their auto portfolios. The asset-backed securitization market has really dried up, which has greatly affected the approval of subprime loan applications. This issue affects lenders, dealers, customers — everyone. Secondly, compliance will be a hot topic. The Red Flags Rule has hands-down had the most significant impact on the auto finance industry this year in terms of compliance. Identity theft and fraud prevention are critical for the auto finance industry, and regulators want to send the message that if dealers can’t police themselves, somebody else will. Lastly, I think the buy-here, pay-here market will be a topic of conversation. There are projections that the BHPH market will grow, but it really depends on dealerships’ ability to raise capital.”
Vehicle Acceptance Corp.: “‘One man’s trash is another man’s treasure.’ While the entire banking/lending industry now believes that anything that starts with the prefix “sub-” is trash, these are great times at VAC. The next 24 months will be the best the buy-here, pay-here industry has had in the past 25 years. VAC is helping all dealers with their cash and collection needs. We are enjoying the greatest growth ever in our 20-year history. Let’s seize the opportunity together. It hasn’t been this good for quite some time.”
Nick Levenstein, managing member, Mongoose Income Fund LLC: “As a startup, we’re definitely buying contracts, but doing so largely by using the founders’ capital. Money center banks have not been willing to lend, although we do have a credit commitment from a slightly smaller national bank. We hope to see attractive quality of retail installment contracts (RIC), yields and healthy reserves. I think this environment favors the finance companies enormously and I’m delighted by the quality of the RIC portfolios I’ve seen. Nevertheless, it has been and probably will continue to be extraordinarily difficult to raise money in the near term.”
Steven Palmieri, president, CMA Financial Corp.: “We’ll be talking about our new Dealer Advantage Credit Program. CMA Financial views the emerging market as an opportunity for dealers to rebuild a stronger customer base through repeat and referral business. We can help turn a dealer’s auto-declined prospect into a creditworthy subprime candidate in as little as 45 to 90 days. As the program grows, dealers will profit by cultivating their nonprime prospects.”
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