Subprime rivalry bodes well for dealers

Jim Henry
Automotive News -- January 18, 2012 - 12:01 am ET
Experian Automotive's Zabritski: "We're approaching where we were in the 2008 prerecession time period."

Photo credit: EXPERIAN AUTOMOTIVE

Subprime auto lending should continue to grow in 2012. But the big percentage gains that several major subprime lenders saw in 2011 aren't likely to be repeated, and that suggests competition will heat up in the segment.

It could be good news for dealers if lenders are competing harder for their business. Dealers have fretted as the comeback in subprime has lagged the comeback in auto sales overall.

"We're approaching where we were in the 2008 prerecession time period," said Melinda Zabritski, director of automotive credit for Experian Automotive, in an interview this week. "We are certainly seeing expansion, but we're not repeating back to where it was."

In the third quarter of 2011, the last period for which detailed statistics are available, subprime auto loans made up 39.9 percent of originations, according to Experian Automotive. That was about 3.2 percentage points higher than a year earlier and just about even with the third quarter of 2008, when subprime was at 40.2 percent.

Subprime accounted for 43.4 percent of originations in the third quarter of 2007. That fell to only 34 percent in the third quarter of 2009, Experian Automotive says.

Rebounding from those lows has helped drive big percentage increases in subprime.

Used-car originations almost doubled for Ally Financial in the United States in the third quarter to $2.3 billion, up from $1.2 billion a year earlier. Those include prime and subprime borrowers.

Birch: "The cost of funds is good. Access to capital is good and expanding. Most people expect our space to be expanding."

Photo credit:
GM FINANCIAL

At GM Financial, third-quarter loan originations were up 41.6 percent from the year-ago quarter, to about $1.4 billion. GM bought the former AmeriCredit in 2010 to create an in-house source that specialized in subprime loans and a leasing source for both prime and subprime customers.

With close to 12,000 new- and used-car dealerships as of Sept. 30, 2011, GM Financial had almost 2,700 more dealerships than it did a year ago and three times as many dealerships as it had in June 2009.

Kyle Birch, executive vice president of dealer services for GM Financial, said this week that GM Financial probably won't add many dealerships in 2012.

"We're pretty set," he said. Birch said the outlook for 2012 is positive. "The cost of funds is good. Access to capital is good and expanding. Most people expect our space to be expanding," he said.

Growth already has flattened out for subprime specialist Santander Consumer USA, which more than doubled in size from 2009 to 2010, largely though acquisitions.

Santander had $14.8 billion in loans outstanding at the end of 2010. That was up from $6.9 billion a year earlier. As of Sept. 30, 2011, however, it still had $14.8 billion outstanding. That was down from $15.4 billion a year earlier, according to a company report.

Experian's Zabritski said subprime lenders can expect a more competitive environment in 2012. According to Experian Automotive, interest rates already have ticked downward in all risk categories to an average of 8.6 percent for used cars in the third quarter, down from 8.8 percent a year earlier, and to about 4.6 percent for new cars, down from 5 percent.

Said Zabritski: "It's going to be more competitive."

You can reach Jim Henry at autonews@crain.com. Readers are solely responsible for the content of the comments they post here. Comments are subject to the site's terms and conditions of use and do not necessarily reflect the opinion or approval of Automotive News. Readers whose comments violate the terms of use may have their comments removed or all of their content blocked from viewing by other users without notification.

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GM Dealers to Give Away Oil Changes to Help Boost Blood Drive

A pair of Chicago-area General Motors dealerships is hoping to lend a helping hand to a local blood center through a rather unique promotion this weekend. Bill Jacobs Cadillac and Bill Jacobs Joliet (a Chevrolet store) are providing free oil changes to shoppers who stop in Saturday and donate a pint of blood.

In addition to the oil/lube/filter change, donators will be given an $11 gift certified to Oberweis Dairy/Ice Cream.

The “Give us a pint and we’ll give you five Quarts” event runs from 8 a.m. (CT) until 2 p.m. at the dealerships, both of which are located at 2001 W. Jefferson Street in Joliet, Ill.

The donations will be given to the Heartland Blood Center.

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Dealer's Auto Auction Wins Another GE Remarketing Award

David Andrews, Dealer's Auto Auction of the South

Dealer's Auto Auction of the South announced recently that it took home Remarketing by GE Imagination Award honors for the second straight year.

Auction owner David Andrews, general manager Phillip Butler and GE account manager Mark Hopkins accepted the award from Paul Seger — who is the vice president of GE Remarketing — last month in South Barrington, Ill.

The auction is located in Horn Lake, Miss.

"Last year I gave this award to this auction and said they were a diamond in the rough,” Seger said when giving the award. “This year, I can say they are a shining star.”

GE declined to provide the full list of winners to Auto Remarketing.

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Dealers weigh giving customers great loans upfront or tapping refi market

Brian Benstock of Paragon Honda and Paragon Acura in New York says his stores keep customers happy by giving them competitive rates upfront.

If auto loan refinancing isn't on your dealership's radar, it may be time to put it there.

The gathering elements of historically low interest rates, auto owners searching out lower monthly payments and lenders scrambling for business could converge to bury unprepared dealerships under a pile of reserve chargebacks.

Although dealerships aren't seeing a lot of vehicle refinancing yet, a number are standing guard. They're also taking more measures to make sure they retain these customers, including partnering with an auto refinancing company.

There are no readily available industry data that track refinancing volume. Nevertheless, "you know it happens and you know it's out there," says Melinda Zabritski, director of Automotive Credit for Experian Automotive. "There are big pockets of customers who can move down to lower rates," she says, referring to near-prime customers who could only get subprime financing in 2009-10.

Online lender OpenRoad Lending, which gets roughly half its business from auto loan refinancing, saw about a 15 percent rise in refinancing applications and overall loan volume last year, says CEO Chris Goodman.

Although credit is improving, he says, people "don't want to buy new vehicles and gobble up more" money. The average model year his company is funding is 2009, he says.

Since customers rarely give warning that they're refinancing, dealers tend to learn about it through finance reserve chargebacks. Ouch.

Dealerships trying to save these customer relationships seem to be divided into two camps: beat 'em or join 'em. Either they're making customers attractive offers they won't want to give up or they're getting in on the refinancing action.

At Langdale Ford in Valdosta, Ga., Finance Director Marvin Eleazer's goal is to see no refinancing at all. "If we see one a month, I get rather irritated," he says.

That's because in addition to losing credibility with customers, Eleazer says, you typically lose their F&I products business, too, since they often opt for cheaper -- though often inferior -- coverage offered through their new lending source. Getting hit with a $700 to $800 reserve chargeback and having to refund $600 on a service contract and $400 on a GAP policy gets kind of pricey, Eleazer says.

Although Langdale Ford has not seen an uptick in refinancing lately, he says, "It's always on the horizon." Several years ago, the mid-sized single-point dealership was seeing two to three refinancings each month. "We spent time finding out the root cause, took control and made serious decisions with rate administration," Eleazer says. His department now tries to hover within 100 basis points of the assigned rate and focus more on products and solutions than rate reserve.

Haddad Motor Group of Pittsfield, Mass., uses a couple of strategies to keep finance reserve chargebacks to a minimum, says F&I Director Chris Cochran. The dealership's pay plan encourages finance people to make money on products, not reserve. The group also keeps its finance rates lower than the local credit union, which, Cochran says, has been advertising at 2.99 percent for at least a year.

Brian Benstock, general manager of Paragon Honda and Paragon Acura in the New York borough of Queens, says he observed an uptick in refinancing options in the market last year but says refunding finance reserve isn't something Paragon encounters often. He credits giving customers very competitive rates upfront and then continuing to educate them about their options.

Paragon lays out for customers, side by side, the costs of refinancing their existing car, purchasing a new car with similar features and buying a pre-owned car with similar features.

Although refinancing's low rates may look very attractive, the store explains to customers that an older car typically depreciates much quicker than its loan will be paid off, which could keep them in the vehicle longer than they'd like or put them in a negative-equity position.

"The customer then has a clear picture of what every scenario is and the benefits of each, and we are happy to help them with any of the three options," Benstock says.

Paragon, which has a team dedicated to analyzing the portfolio of each customer, reaches out to them when they enter an equity position on their current vehicle. More often than not, customers opt for a new model for a lower monthly payment and with no money out of pocket.

"In the grand scheme of things, it is a win-win situation for both the customer and Paragon," Benstock says.

"We desperately need qualified pre-owned cars, and they are happy to drive a newer car for the same or less a month."

Antonino Automotive Group of Connecticut is taking a different approach to refinancing. Through its affiliation with Auto Refi Now, a loan matching service for dealers and auto consumers, it's able to legally process refinance applications.

On average, the group helps 10 customers per month refinance at each of its nine dealerships says Justin Hoopman, general manager of the Girard Ford store in Norwich. That's not counting new vehicles purchased by customers who come into the dealership through Auto Refi Now.

"It's a growth machine for us," says Hoopman, who says Auto Refi Now makes it easy to farm leads and bring customers back to the dealership to re-evaluate their needs.

Auto Refi Now enables a loan refinancing to be processed at the dealership through software menu systems that tie into dealership management systems.

Dealers must use Auto Refi Now's preferred lenders, says President Spencer Walters, a former dealership finance manager. Greenwood Credit Union of Warwick, R.I., has been its main funding source over the past nine months, he says.

Walters says average dealer profit on a refinancing is about $1,000, with a sizable amount coming from the sale of GAP policies.

It is a benefit being able to mention refinancing in the dealership's newspaper ads, says Hoopman. "It's an advantage to us and an advantage to the customer."

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How best to improve FandI? More training, dealers say

Jim Henry
Automotive News -- December 14, 2011 - 11:16 am ET

Better training was the No. 1 choice for improving F&I this year among dealerships responding this month to an informal Automotive News online survey.

And it's no wonder. In addition to finance contracts for loans and leases, F&I managers have to stay on top of a changing menu of products, plus a long and growing list of legal disclosures.

For example, the Federal Trade Commission this year started enforcing the Red Flags Rule, aimed at preventing identity theft. Meanwhile, dealers have said throughout 2011 that F&I products are more important than ever to overall dealership profitability. Those factors add to the F&I manager's workload and the need for more training.

Half of the 143 dealership respondents to the nonscientific multiple-choice survey answered "Better training for F&I managers" to a question that asked: "What did you do this year to improve your F&I results?" That was far and away the most popular answer. Respondents had to choose only one answer.

The next-most-popular choices were: "New rewards/compensation system for employees" and "Improved menu presentation technology," such as iPads. Those responses each got about 19 percent of the total.

Only about 6 percent of the respondents said they started selling service/maintenance contracts in the service lanes, making it the least favorite choice among dealerships to improve F&I results. That's surprising because several of the big publicly traded retailers said that they were pushing hard this year to sell more F&I products in the service department, especially extended-service contracts.

Dealerships' top and bottom choices could be related. Larry Dorfman, CEO of F&I vendor EasyCare, said separately that training is an important part of launching F&I sales in the service department.

Said Dorfman: "The challenge is in the training."

You can reach Jim Henry at autonews@crain.com. Readers are solely responsible for the content of the comments they post here. Comments are subject to the site's terms and conditions of use and do not necessarily reflect the opinion or approval of Automotive News. Readers whose comments violate the terms of use may have their comments removed or all of their content blocked from viewing by other users without notification.

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