While he also discussed reasons for sagging sales at buy-here, pay-here dealerships and pre-approvals for used-vehicle financing, surges in floor traffic and closing ratios associated with last month’s new-vehicle sales prompted CNW Research president Art Spinella to say, “The final 10 days of July were a wild ride, indeed.”

CNW indicated floor traffic — that had been running at a 4-percent increase over the previous year — suddenly hit nearly 11 percent.

The firm noted closing ratios — on pace to post a 3.3-percent gain at mid month — ballooned to 7.4 percent in the final 10 days.

Analysts also found that same-store sales — up 3.1 percent in the first half of the month — swelled to nearly 10 percent from July 20 through 31.

Furthermore, CNW pointed out leasing was running at a 28-percent rate in the first 20 days of the month but then jumped to nearly 35 percent in the final 11 days of July.

“All in all, incentive spending including subsidized leases, low-interest loans and quicker approval of subprime contracts put the industry on the launch pad and ignited the rocket that led to a double-digit sales increase nearly twice what was in store as of July 15,” Spinella said.

Nearly 70 Percent of July Used Sales Included Financing

The finance office stayed busy in July working up contracts for used vehicles as CNW determined 68.9 percent of all used sales last month included financing, a rise of 11.4 percent year-over-year.

Of the 4.58 million used sales in July, the number of subprime buyers jumped 12.8 percent on a year-over-year basis and 2.9 percent compared to June, according to CNW.

The deepest of subprime buyers — customers with FICO scores below 550 — also increased by double digits year-over-year. CNW indicated the amount of used-vehicle buyers in this category jumped 25.4 percent to 618,260 purchasers.

While that deep subprime pool is in the crosshairs for buy-here, pay-here dealers, CNW discovered sales in July for this segment slipped 9.3 percent versus a year ago.

Spinella told Auto Remarketing why.

“What we’re seeing is that the conventional finance institutions — banks, credit unions and the military credit unions — are all going a little deeper in terms of who they will accept. In large measure, that will keep a lot of people out of the buy-here, pay-here lot,” Spinella said.

“(Buyers) can go to an independent dealer or a franchise dealer or even private party and get a loan that a year ago would have definitely gone to the buy-here, pay-here lot,” he continued. “And they can get a loan from a conventional used-car operation as opposed to buy-here, pay-here.”

Beyond other finance companies buying paper much lower in the credit spectrum, Spinella spotted another reason why BHPH dealers might have struggled to move metal last month.

“The other part is there are regulations that are kicking in that are at least point dampening buy-here, pay-here to some minor degree. We’ve seen a number of buy-here, pay-here operations cut way back because of those regulations, especially in California,” Spinella said.

Could BHPH regulations in the Golden State spread elsewhere and start to influence BHPH sales in other parts of the country?

“I think it will eventually wind up being an influence across the country, but I think the buy-here, pay-here operations are pretty savvy,” Spinella said. “They find ways of dealing with it, and there’s always a market. As long as there’s a market, there will be ways to get to work within the guidelines of the regulations.

“Not too concerned in the medium term. But in the short term, it might be that buy-here, pay-here takes a slight hit over the next year or so,” he added.

Pre-Approvals Trending Lower

Elsewhere in the financing of used vehicles, CNW found that the number of pre-approved loans in July slipped 12.5 percent compared to year ago data but rose 4.6 percent compared to June of this year.

Spinella explained the pre-approval movement is due to plenty of financing promotions both franchised and independent dealerships are pushing nowadays. He also pointed toward a shopping shift that influencing how buyers are securing their financing.

“Consumers are looking for very specific vehicles again, or at least starting to,” Spinella said. “During the recession, they were looking for anything with wheels that could get them through a particular time or replace a particular vehicle that wasn’t really suitable for whatever their driving needs were. They were more willing to make a purchase of a vehicle they weren’t really crazy about but needed. What we’re seeing now is consumers are going back to looking for a specific vehicle.”

So instead of settling for a blue Chrysler minivan, Spinella explained potential buyers looking for the exact red Chrysler minivan they want. In light of this example, he went on to explain why that preference is pushing purchasers away from the pre-approval path.

“When you do that, having a pre-approved loan isn’t necessarily going to help you much because you’re going to be looking at multiple places,” Spinella said. “Most places now have such good financing opportunities. There isn’t anybody who can’t place a loan for all intents and purposes regardless of your credit rating. There’s no real reason to get a pre-approval to see if you qualify. That’s really the only thing people do with a pre-approved loan is to see how much the bank is willing to let them buy and to see if they have a credit score that’s going to let them make that purchase.

“As things get looser, we always see pre-approvals kind of soften,” he added. “That’s really what’s going on. We expect to see pre-approvals actually start to fall off over the course of the next six or eight months.”

Nick Zulovich can be reached at nzulovich@autoremarketing.com. Continue the conversation with Auto Remarketing on both LinkedIn and Twitter.