February 2012

Polk: Economy Continues to Push Consumers to Keep Vehicles Longer than Ever

SOUTHFIELD, Mich.  - 

When a shopper buys a new-vehicle these days, the person will typically keep the car close to six years, according to Polk, which said vehicle ownership periods have never been this high.

In examining vehicle registration data for the third quarter of 2011, Polk found that consumers are now holding on to vehicles they purchased as new for an average of 71.4 months, just shy of six years. They are keeping vehicles bought used for almost 50 months.

When these two groups are averaged together, the vehicle ownership period averages 57 months. This represents a 23-percent hike from the third quarter of 2008, which is when the economic turmoil in the U.S. began.

Polk pointed to a number of causes that have led to consumers keeping cars longer, including their cautious spending amid a soft job market and high unemployment. Additionally, the fact that consumers are often offered longer financing periods has played a role as well.

What’s more, as industry reports indicate, vehicles these days are simply more reliable and longer-lasting. And automakers have often stretched out the warranty period on new cars, giving the consumer more assurance if they choose to extend the ownership period.

Benefits to Aftermarket

While longer ownership periods create a longer purchasing cycle at dealerships, this trend— plus Polk’s finding that average vehicle age has climbed to 10.8 years — creates “promise” in the aftermarket, Polk suggests.

But Polk did offer a bit of caution.

“As the aftermarket prepares to service this aging vehicle population, this creates concerns about appropriate parts inventory,” stated Mark Seng, global aftermarket practice leader at Polk.

“As a result of our analysis, we’re currently working with customers in the aftermarket to help them prepare for increasing demand throughout the entire supply chain,” he continued.

Will These Trends Last?

Looking forward, Polk believes this extended ownership trend isn’t likely to stop any time soon. The firm believes it will be 2015 before the new-car market gets back to the 16-million sales level it saw before tumbling three-and-a-half years ago.

“Unemployment rates continue to be high, and we expect many consumers will suffer from the lingering effects of the downturn, further contributing to longer ownership trends,” Seng noted.

With longer ownership periods, it is paramount to figure out the most ideal time for reaching out to potential buyers, Polk suggested. As the firm has discovered in previous studies, the longer consumers hold on to vehicles, the less likely they are to be loyal to the respective brand.

“Leaders involved in new-vehicle sales may want to consider tracking the length of ownership trend to determine when their customers are likely to come back,” Polk stressed. “A length of ownership analysis at the manufacturer or brand level may provide insight into the return-to-market cycle to stimulate purchase behavior.”
 

Preferred Warranties Marks 20th Anniversary by Revealing Continued Sales Revenue Jump

ORWIGSBURG, Pa. - 

Extended service contract provider Preferred Warranties began its 20th anniversary celebration this week by highlighting a 29-percent increase in sales revenues last year, coming on the heels of a 16-percent jump during 2010.

PWI national sales manager Wayne Herring Jr. declared, “2010 was strong, 2011 was even stronger.

“The new plans and dealer programs that we introduced last year have been extremely well received,” Herring continued. “We’re opening up new territories, and we have built the best customer service and sales team in the business. The long and short of it is that we have a lot to celebrate.”

Last year, the company introduced a new high-end protection plan, an online contract entry tool for dealers, new Spanish sales literature and expanded dealer rebate incentives.

PWI also introduced its Premier Plan, offering coverage on a wider range of parts and service needs including many new high-tech systems and components.  

“The coverage is so extensive that we’ve gone to an exclusionary contract,” Herring pointed out. “It lists the few items not covered by the Premier Plan. If a component or problem is not on that list, this plan covers it.”

The company also invested heavily in support and technology for dealerships that carry Preferred Warranties.

In June, PWI introduced eContract, an online program that can allow dealers to instantly compare, present and submit service contracts on virtually any vehicle.
 
“The speed and simplicity of Preferred’s online contract program are amazing,” stated Mike Bowers, of John’s Great Cars in Reading, Pa.

“In less than a minute I can enter the information on any vehicle, calculate all of the service contract options, and have it presentable for the customer on a single page,” Bowers added.

Last summer, the company also introduced new Spanish versions of marketing and sales materials.

“To my knowledge, Preferred Warranties was the first provider of aftermarket vehicle protection plans to make a focused effort on hiring bilingual claims reps,” noted Greg Reyes, one of PWI’s full-time bilingual customer service reps.

“The management team is committed to recruiting, training and maintaining the best bilingual staff in the business,” Reyes emphasized.

Celebrating aside, Preferred Warranties stressed it won’t be resting on its laurels. The company’s plans for 2012 include a new e-tablet app that can enable dealers to instantly customize and compare finance and insurance products for customers.

Herring insisted the company’s solid record of growth has come since its founding in 1992.

In 1998, Preferred Warranties was ranked No. 179 on the Inc. 500 list of fastest growing U.S. companies and earned a Torch Award for Marketplace Ethics from the Better Business Bureau. Today Preferred Warranties protection plans are insured by an A.M. Best “A-” underwriter, and offered through dealerships in 17 states. The company is rated “A” by the Better Business Bureau.

Preferred Warranties extended service contracts are available through dealerships in 17 states, including Alabama, Delaware, Georgia, Indiana, Kentucky, Maryland, Michigan, New Jersey, New York, North Carolina, Ohio, Pennsylvania, South Carolina, Tennessee, Texas, Virginia and West Virginia.

More consumer and dealership information is available on PWI’s website at www.warrantys.com.

Cars.com Cares Gives $100,000 Donation to SADD

CHICAGO - 

This week, Cars.com utilized its corporate giving initiative and leveraged voting through its social media platforms to award a $100,000 donation to Students Against Destructive Decisions (SADD).

Cars.com president Mitch Golub highlighted why SADD received these funds and also shared more background about Cars.com Cares.

“We launched Cars.com Cares this year to help fuel organizations that share our mission of building confidence,” Golub explained.

“SADD builds confidence in kids and young adults through the promotion of positive lifestyle choices. I’m thrilled they are receiving our $100,000 donation to continue their great work,” he continued.

Golub went on to mention voting for Cars.com Cares began on the site’s Facebook page on Jan. 26 and continued through Feb. 13. During that time, fans could vote for one of seven causes in the running for the site's grand donation.

Other participating causes included Adopt-A-Classroom, Alliance For a Healthier Generation, Cameras for Kids Foundation, Reading Is Fundamental, Scholarship America and VH1 Save The Music Foundation.

Cars.com pointed out that it also got Super Bowl viewers and Facebook fans involved in the program.

Every time someone tagged the site's Super Bowl ad using Shazam or shared their vote on Facebook, Cars.com added a $1 donation to the cause with the most votes, up to $100,000.

Officials indicated SADD brought in the largest number of votes from its national network to receive the full donation.

The site added each participating cause also received a donation from Cars.com Cares.

“We cannot thank Cars.com enough for including us in the Cars.com Cares program,” stated SADD executive director Penny Wells.

“This donation will help fund many of our prevention education programs in schools and communities across the country,” Wells emphasized. “SADD gives young people the confidence to stand up for their beliefs and the tools they need to help other teens make choices that are healthy and positive.”

CFPB Proposes Rule to Supervise Larger Participants in Consumer Debt Collection and More

WASHINGTON, D.C.  - 

The Consumer Financial Protection Bureau recently announced a proposed rule to include debt collectors and consumer reporting agencies under its nonbank supervision program — marking the first time these consumer financial market participants are subject to federal supervision.

The Dodd-Frank Wall Street Reform and Consumer Protection Act, which created the CFPB, authorizes the CFPB to supervise nonbanks in the specific markets of residential mortgage, payday lending and private education lending.

In addition, for other nonbank markets for consumer financial products or services, officials noted the CFPB has the authority to supervise “larger participants.”

As directed by Dodd-Frank, the Bureau must define such “larger participants” by rule, and an initial such rule must be issued by July 21.

Last summer, the CFPB sought public comment about possible markets to include in the initial rule and available data sources the Bureau could use to define larger participants in nonbank markets.

“Debt collectors and consumer reporting agencies touch millions of American consumers,” stressed bureau officials, who estimated about 30 million Americans have debt under collection with the average amount being $1,400.

CFPB rattled off the three main kinds of debt collection firms that dominate the market:

—Firms that collect debt owned by another company in return for a fee.
—Firms that buy debt and collect the proceeds for themselves.
—Debt collection attorneys and law firms that collect through litigation.

The bureau also pointed out a single company may collect through any or all of these activities.

Under the proposed rule, officials explained debt collectors with more than $10 million in annual receipts from debt collection activities would be subject to supervision.

Based on available data, the CFPB estimated that the proposed rule would cover approximately 175 debt collection firms — or 4 percent of debt collection firms — and that these firms account for 63 percent of annual receipts from the debt collection market.

“The consumer reporting market plays a critical role in the consumer financial services marketplace and in consumers’ financial lives,” officials emphasized.

“It includes the largest credit bureaus selling comprehensive consumer reports, consumer report resellers, and specialty consumer reporting agencies,” they added.

According to the Consumer Data Industry Association, each year there are 36 billion updates to consumer files, and 3 billion reports are issued. The three largest consumer reporting agencies alone maintain information on 200 million American consumers.

CFPB reiterated that lenders use consumer reports, which are commonly called credit reports, when evaluating applications for credit cards, home mortgage loans, automobile loans and other types of credit. Specialty consumer reporting agencies collect and provide information used to make eligibility decisions for a variety of products, such as checking accounts.

Under the proposed rule, the Bureau explained consumer reporting agencies with more than $7 million in annual receipts from consumer reporting activities would be subject to supervision. This would include approximately 7 percent of consumer reporting agencies based on available data.

Officials added the proposed threshold would allow the CFPB to cover about 30 consumer reporting agencies. The CFPB estimated that these 30 companies account for about 94 percent of the annual receipts from consumer reporting.

“This is the CFPB’s first in a series of rulemakings to define larger participants,” officials pointed out. “The CFPB chose annual receipts as the criterion for both debt collection and consumer reporting because it approximates market participation in these two markets. As the CFPB adds new markets, it will choose the best criteria and the appropriate thresholds for each market.”

The CFPB indicated the proposed rule is open for comment for 60 days after the rule is published in the Federal Register. The CFPB is welcoming comment from the public on the proposed rule.

The proposed rule has been published online here.

“Consumer financial products and services have become more complex over the years and they have expanded well beyond traditional banks,” stated CFPB director Richard Cordray.

“Our proposed rule would mean that those debt collectors and credit reporting agencies that qualify as larger participants are subject to the same supervision process that we apply to the banks,” Cordray continued. This oversight would help restore confidence that the federal government is standing beside the American consumer.”

More information about the CFPB’s Nonbank Supervision Program is available here.

CFPB Advice for Small Businesses

In other news from the CFPB, officials insisted they are mindful that new statutory requirements they are implementing can burden as well as benefit small financial services providers.

“We use many methods to reach out to small providers to find out if any of these burdens are unnecessary and, if so, how we may be able to reduce them (within the limits of our statutory authority, of course),” they explained.

The CFPB cited one possible method is the Small Business Review Panel under the Small Business Regulatory Enforcement Fairness Act (SBREFA).

In certain cases, officials indicated this act requires the agency to form and chair a panel alongside representatives of the Small Business Administration (SBA) and the Office of Management and Budget. That panel will meet with a group of representatives of the small providers directly affected by the new requirements.

“We expect the number of representatives will generally be around 15 to 20,” officials projected. “They will provide feedback on the options we’re considering and on alternatives to minimize negative impacts.

“Within 60 days of convening, the panel will complete a report on the issues, including input they receive, their findings on the economic impacts of the proposal and any alternatives that achieve the proposal’s objectives while minimizing unnecessary burdens,” they continued. “The bureau will then consider the panel’s input in preparing the proposed rule.”

Know Before You Owe

Moreover, this week, the CFPB mentioned it is doing the final round of “Know Before You Owe” testing in Austin, Texas.

“As we shift to writing the rules that implement the required disclosures on the forms, we want to gather additional input from small providers that these new rules will affect directly,” officials reiterated.

“We have received a lot of questions about these rules. We are going to share the regulatory proposals that we are considering and hear your feedback,” they stated.

In the upcoming weeks, the review panel will meet with a group of small lenders, brokers and settlement agents that we have selected in consultation with the SBA. The representatives are being asked to provide the panel feedback on the potential economic impacts of complying with the proposals we are considering.

The panel will invite the representatives to suggest alternatives and will issue a report summarizing this feedback and making findings.
Here are the materials that the CFPB is sharing with the small financial services providers:

—A fact sheet summarizing the Small Business Review Panel process.

—An overview of the proposals we are considering and their potential implications for small providers.

—A list of questions and issues on which we will seek small providers’ input at the panel outreach meeting.

Feedback From Consumers and Other Providers

While the review panel takes feedback from small providers, the CFPB noted it wants to hear from consumers, too.

Consumers can send comments via email at TILA-RESPA@cfpb.gov. Here are some examples of what the agency is considering:

—Many lenders and mortgage brokers provide consumers with preliminary estimates of loan terms and settlement costs that are not mandated by TILA or RESPA. The group is considering whether to require that these preliminary estimates carry a disclaimer that tells the consumer that the document is not the integrated Loan Estimate required by TILA and RESPA.

—Under the current rules, when a lender provides a consumer with an estimate of the cost of its own services under RESPA, the actual cost cannot be higher than the estimate unless there is a valid change of circumstances. The Bureau is considering a proposal to apply the same limitation to estimates of services provided by the lender’s affiliates or by companies the lender requires the consumer to use.

—Under the current rules, consumers typically receive a disclosure with some of their final loan terms and costs three business days before closing on the loan. Other costs are finalized on the day of closing. The Bureau is considering a proposal that would generally require delivery of the integrated settlement disclosure stating the consumer’s final loan terms and costs at least three business days before closing, although some flexibility may be provided.

“While you review our materials, we will continue refining the proposals under consideration before we formally propose a rule for comment in July. At that time, you will have another opportunity to weigh in and let us know what you think,” the CFPB concluded.

 

While Predicting Repo Upswing, Webb Points to Factors Bolstering Recovery Bottom Lines

ATLANTA - 

While also predicting repossessions should trend upward again, Manheim chief economist Tom Webb explained why lenders didn’t sustain as much of a loss when a loan contract went south during the past two years.

Webb stated that “in those cases in which repossessions did occur in 2010 and 2011, lenders experienced a significant reduction in the severity of loss. This reflected the strength of wholesale used vehicle prices, more conservative loan-to-value ratios in the underlying contract, and the general aging of portfolios."

In Manheim’s annual Used Car Market Report, Webb pointed out repossession volumes are determined by contracts outstanding, their aging and their static pool loss performance.

“Those forces combined to produce a record number of repossessions in 2009 and then a steep decline in both 2010 and 2011,” Webb surmised. “The peak-to-trough swing was from an estimated 1.9 million units in 2009 to 1.3 million in 2011, or a decline of 32 percent.”

Given the recent growth in originations and some easing in lending standards, Webb thinks repossession volumes will likely grow in future years.

“It is clear, however, that households have increased the priority that they associate with making their monthly car payment and, as such, delinquencies and default rates will be lower than they otherwise would be for any given set of economic circumstances,” Webb emphasized.

“In addition, strength in wholesale used-vehicle pricing (a condition which we think will persist for some time) has meant more borrowers have positive (or only slightly negative) equity in their vehicle loan and, thus, are less likely to default,” he continued.

“These two factors, which substantially reduced repossession rates in 2010 and 2011, will keep repossession volumes from returning to their 2009 peak anytime soon,” Webb concluded.

Weathering the Storm: NC Dealers Show Determination in the Lanes

KENLY, N.C.  - 

After dealing with the unexpected snowfall in North Carolina, dealers and buyers alike had another storm to weather Monday morning — navigating the tough wholesale environment, ridden with unit scarcity and skyrocketing prices. 

At the Manheim North Carolina sale, the overall attitude was one of grim determination. Buyers and dealers alike are taking hits right and left due to high prices in the lanes, but the show must go on. And with no change in sight, all attendees had buckled down that cold morning to get down to business and stock the lots.

And though most dealers Auto Remarketing spoke to agreed that times were tough and 2012 is looking to be an even tougher wholesale environment than last year, they are all “preparing” for the reality of making a smaller profit and are on the lookout for opportunities to catch a break.

The “Reality” of High Wholesale Prices

And one particular dealer even went so far as to say he has resigned to high wholesale prices and knows profit margins are shrinking.

Mitch Rowland, of Coastal Auto Market in Sawnsboro, N.C., noted, “They (wholesale prices) are over $1,500 more than what is considered normal. You literally got to pay close to retail to buy something. You have to just resign to making less of a profit and move on.

"That is the reality of this market, but hey, we are hanging in there,” Rowland added.

And Chip Lee, of Carolina Auto Sales, who also buys for numerous other dealerships, said the margin between the price of new and used cars is continuing to shrink, making it hard for rooftops to stock their lots.

“I don’t know if they (dealers) are getting any opportunities right now. Prices are so high that we are all out of wack. There are no cheap cars on the market; the prices are through the roof. And if we don’t watch it, the late model cars are going to be matching up with new cars. There is no room for mistakes," he said.

"Anything less than the $13,000 range. Anything from the $7,000 to $13,000 range is going to be your highest market. We are all trying to buy the same thing,” Lee added, stressing that as prices go up, dealer competition is growing, as buyers vie for the few quality affordable units.

Japanese Cars “Hot” at Auction

And with wholesale prices affecting rooftops all over the country, some units are becoming even more difficult to find — but according to one dealer, these are the ones you “must” pay up for.

Kenneth Love, of Direct Auto Sales in Sharpsburg, N.C., says Japanese nameplates are becoming even harder to come by, and “that’s what the shoppers want.”

“We are a smaller dealership, so we are doing fine. But, there is no room for mistakes. And it is becoming harder to find the particular units we want and the customers want,” Love stressed.

He then went on to mention just which units his dealership is working hard to get on the lot: “Your Toyotas and your Nissans and your Hondas … you are always paying more for those. You get better mileage, and they last longer. You can get a car with 175 to 200 thousand miles on it and it will keep right on going. And customers know that. That’s just the way it is.

“I think we are in the time of the year where prices are high on these, and prices are just high in general,” he added.

The Outlook for the Spring Season

And since the reality of the wholesale market right now has some dealers looking for the light at the end of the tunnel, the later spring season could bring some relief.

One driver at the auction, David Harris, says he feels as if the later spring might see a “slide” in what he called “through-the-roof” prices. He interacts with dealers on a regular basis.

“You see, tax season is pushing these prices much higher than they should be. Of course, we are still in a tough environment, but come late spring and these should be back so somewhat normal," he noted.

"That said, last year's prices were high as well, so they will go down, but dealers will still have to be careful,” Harris continued.

Manheim’s Chris Hill, who offers product demonstrations of the company’s digital tools through The Wholesale Institute, also offered his take on the current market.

As dealers flooded the Manheim booth set up for demonstrations of its free mobile app, Hill got a first-hand account of the overall attitude of dealers and what tools they are searching for to help them navigate this tough wholesale environment.

“I think that it’s never been more important for dealers and buyers to know the marketplace and have access to information that provides that just in time. So, if I had something that can tell me instantly what’s going on and if I can know the vehicle and my margins right then and there; I think that is huge.

“I think realizing and understanding that it (the Manheim app) is here to help is a big improvement and make their lives a little easier and make it easier for them to do business with us,” he continued.

These demonstrations were part of Manheim’s recently launched “One the Go” sessions,

At the time of the launch of the program earlier this month, Auto Remarketing reported that this extension of TWI  is designed to save dealers time by bringing training sessions on the company’s digital tools to the sale days at various Manheim auctions.

In other words, TWI “On the Go” aims to connect with dealers when they’re already at a Manheim auction buying or selling cars.

For more information, see the Auto Remarketing story here.