Crystal Fusion Technologies now a part of F&I Express’ aftermarket network


This week, F&I Express welcomed Crystal Fusion Technologies to its network of aftermarket providers, which now total more than 140 companies.

Crystal Fusion manufactures Ultra-Hydrophobic coatings for windshields to enhance visibility in bad weather and strengthen the glass. Crystal Fusion also offers a windshield warranty and a unique retention program that has been successfully implemented in thousands of dealerships worldwide.

“Crystal Fusion is the clear choice when choosing a product to protect your windshield,” said Gary LoCicero, sales director of CFT Products. “Partnering with F&I Express creates a seamless experience for those looking to protect their investment with our product.”

Digital solutions from F&I Express include eContracting, eSignature, Express Recoveries aftermarket cancellations, and more. F&I Express can streamline the aftermarket process for optimized efficiency to make F&I easier and more profitable for everyone involved.

“We are excited to welcome Crystal Fusion to the F&I Express provider network of over 140 different providers,” F&I Express chief executive officer Brian Reed said. “This will provide Crystal Fusion access to not only the F&I Express system but also to our partners who access our Dealer System Providers API.”

7 differences between career seekers and job seekers


While Cox Automotive’s latest workforce study uncovered some startling data and Hireology presented some branding suggestions, Automotive Personnel chief executive officer Don Jasensky reiterated the seven differences he has seen between “job seekers” and “career seekers.”

Jasensky insisted that “there is a world of difference,” as finance companies and dealerships look to fill their workforces with the best possible employees to finalize contracts, complete deliveries and the myriad of other tasks that happen in the automotive retail space.

“Career seekers are looking to ‘become something more’ and ‘add career value’ when they seek a new position,” Jasensky said in a blog post on his company’s website.

Jasensky then explained the seven differences between these individuals that he teaches recruiters and clients. They include:

—Career seekers will likely put more effort in becoming very good at their work.

—Career seekers will invest more money, effort and energy in developing their careers.

—Career seekers are looking long-term and will make decisions that will benefit them long-term.

—Because they are looking long-term, career seekers will be more selective and take more time to make a decision.

—Career seekers will talk to mentors and other trusted people before committing to a new position.

—Job seekers will come to interview “all enthused” and will “jump through any hoop,” which is attractive to many managers but is not an indicator of high performance.

—Job seekers will accept a position quicker with less investment in researching the company and the position.

“Career seekers will be excited the day they get started because they are beginning a new chapter in their career,”  said Jasensky, who also is a board member of the National Automotive Finance Association. “The job seeker will be happy that the ordeal of finding a job is over. Entirely different mindsets."

More workforce recommendations and current industry job listings can be found by going to Automotive Personnel’s website.

ProMax enhances certified integration with Dealertrack


Dealer Marketing Services, the makers of ProMax, on Monday announced significant enhancements to its certified integration with Dealertrack.

ProMax is a certified partner of most major dealer management systems, and has offered a certified integration with Dealertrack since 2009. The newly updated two-way integration with Dealertrack further facilitates the automated transfer of data between ProMax and Dealertrack, including inventory, repair orders, customers, service and delivered deals.

The company insisted this data flow, updated multiple times daily, can enable dealers to streamline their processes and improve accuracy.

“With the continued growth and evolution of technology and data in automotive retail, it’s a strategic advantage to work with innovative partners such as ProMax to expand and enhance our Opentrack DMS program,” said Candy Lucey, senior director of marketing at Dealertrack.

“Opentrack substantiates our vision of an open platform approach designed to give third-party partners such as ProMax the maximum flexibility to use our platform to best meet the needs of our dealers,” Lucey continued.

“This enhanced integration is great news for our mutual dealer customers,” said ProMax chief executive officer John Palmer, whose company provides lead-generation solutions along with other products associated with credit reports, dealer websites and more.

“We’re always looking for ways to help our dealers succeed, and this updated integration will go a long way towards doing that,” Palmer went on to say.

20 senior industry leaders upbeat about finance market


If your shop is struggling with originating quality paper or keeping customers current, perhaps here’s some good news.

The opinions of business leaders including company chief executive officers, directors, chairmen and presidents highlighted in White Clarke Group’s new U.S. Auto & Equipment Finance Survey 2017 paint a detailed picture of a developing and dynamic market.

This research project shared recent industry statistics from local trade associations as well as featuring views and predictions from 20 well-known industry leaders, including some who have made appearances at Used Car Week.

White Clark Group’s survey revealed that the arrival in the White House of arguably the most business-friendly administration in history has sent business and consumer confidence soaring, but the impact of pre-election promises in terms of regulatory reform, fiscal changes and federal spending has yet to be fully felt.

“Businesses are looking to President Trump to deliver the enhanced economic growth that was a core promise of his election campaign, but there is an element of uncertainty about how the market will develop in the long-term,” White Clarke Group said.

In the new-vehicle market, while report authors acknowledge new-models sales are set to falter slightly this year, there is still a strong appetite for new cars and light trucks, funded through cheap finance options and low interest rates.

The National Automobile Dealers Association is forecasting total sales of 17.1 million new cars and light trucks in 2017, and although this will represent a fall in demand, it is still expected to be one of the highest performances on record.

Ongoing demand is being funded predominantly through finance, with Experian reporting the average installment contract amount for a new vehicle reaching a record high last year of $30,621; while used vehicles also achieved new peaks at $19,329 per vehicle.

The rise has caused concern in some areas about the level of debt being taken on by consumers, with the auto loan market now accounting for more than $1.1 trillion.

Although there are fears about vehicle oversupply and its impact on used asset values, the indications are that the market remains robust, according to the report.

At the same time, White Clarke Group mentioned the re-emergence of small and regional banks looking to expand services to existing manufacturers, dealers and retailers is continuing to spur growth in the dealer floorplan finance market.

Featured opinions and predictions included in the survey report came from:

• Jamie Dimon, chairman and CEO, JPMorgan Chase & Co.

• Melinda Zabritski, automotive finance senior director, Experian

• Lou Loquasto, VP automotive leader, Equifax

• Bill Stephenson, CEO, De Lage Landen

• Dave Mirsky, CEO, Pacific Rim Capital

• Matthias Müller, CEO, Volkswagen Group

• Tracey Zhen, president, Zipcar

• Ralph Petta, president and CEO, ELFA

• Tom Partridge, president, Fifth Third Equipment Finance

• Gary Amos, CEO Commercial Finance - Americas, Siemens Financial Services

• Alan Sikora, CEO, First American Equipment Finance

• Adam Warner, president, Key Equipment Finance

• David Slider, group EVP, White Clarke Group

• Stephen Whelan, partner, Blank Rome

• Bill Bosco, principal, Leasing 101

• Kurt Ruhlin, chief operating officer, White Clarke Group

In the equipment leasing segment, there is a confident atmosphere, as new business volumes increase to reflect stronger economic activity.

Figures from the Equipment Leasing and Finance Association (ELFA) show an acceleration in new business volumes during the first half of 2017.

ELFA president and chief executive officer Ralph Petta said, “Business owners are taking advantage of low interest rates, favorable employment data, an equity market that continues to defy gravity and other solid fundamentals to replace aging assets and, in some cases, expand operations, requiring installation of new equipment.”

The exclusive report can be downloaded here. White Clarke Group also offered a video recap of the report that can be seen here or through the window at the top of this page.

UPDATED: 70 finance companies already listed with SuperMoney’s new platform

CARY, N.C. - 

More than 70 finance companies are now included with a technology startup that’s aiming to provide consumers with an online auto financing search and booking process similar to what they already can use to secure flights or hotel rooms.

SuperMoney, which rolled out a similar personal loans platform back in April, this week officially launched its auto finance tool, according to a blog post on its website.

A further search of SuperMoney’s website showed the variety of auto finance providers that are listed with this technology company, including subprime specialists such as Credit Acceptance, Exeter Finance, First Investors Financial Services, Santander Consumer USA and Westlake Financial Services.

A wide array of captives are listed, including GM Financial, Ford Motor Credit, Hyundai Motor Finance, Nissan Motor Acceptance Corp. and Toyota Financial Services. The commercial bank involvement is extensive, too, as the list features Bank of America, SunTrust, Wells Fargo, Fifth Third Bank, Regions Bank and PNC Bank.

Several other market leaders have a connection with SuperMoney’s platform, as well, such as Ally Financial, Chase Auto Finance, Capital One Auto Finance and USAA.

SuperMoney explained in the blog post that its auto finance offer engine can allow consumers to submit a single, online application and receive multiple offers in return. The site indicated the tool can make “apples to apples” comparisons when consumers are shopping for the best auto financing rates, fees and terms.

The platform can help consumers if they’re looking to make a vehicle purchase at a dealership or through a private-party transaction, as well as if they’re looking to refinance their current installment contract.

The blog post also noted that participating finance companies only conduct a soft pull of consumer credit files during the initial process.

“The traditional auto financing experience is antiquated — like purchasing an airline ticket 20 years ago,” SuperMoney chief executive officer Miron Lulic said in the blog post. “These days buying an airline ticket is fast and easy. We’ve brought that same great comparison shopping experience to the auto loan industry.”

Lulic replied to a message sent by SubPrime Auto Finance News asking for more details about how SuperMoney got involved in the auto finance space.

Lulic described how SuperMoney was able to land arrangements with such an array of auto finance providers.

“SuperMoney has been around for several years. We’ve built relationships over time and continue to do so. Our site traffic started to grow exponentially in the last year which has made the conversations quite a bit easier,” he said.

Lulic then pointed out how ow SuperMoney can cater to consumers throughout the credit spectrum.

“SuperMoney stores detailed data on every financial service listed on the site,” he said. “For example, target FICO ranges, product attributes such as loan amounts, supported states and basic underwriting guidelines.

“This allows us to narrowly segment every users who lands on our website to help them discover their best options. Our goal is to help every user find their best option,” Lulic continued.

Finally, Lulic also addressed how SuperMoney generate revenue through auto financing.

“SuperMoney is an advertising platform, and we are compensated for the referrals we make to our partners on everything from a CPC (cost per click) to a CPA (cost per acquisition) basis,” Lulic said.

“Unlike dealers, this is not structured as a dealer reserve markup. The offers shown in our loan offer engine are the offers returned by our partners and we don’t adjust them to account for our own fees,” he went on to say.

Westlake’s latest investments in technology, training


As Westlake Financial Services broadened its employee training program, the finance company also recently agreed to use Equifax’s dealer intelligence platform, TradeSight, to manage and monitor its dealer relationships.

TradeSight can help finance companies analyze originations, current and future dealer partners and performance of the installment contracts booked through dealer partners. The tool works by combining Equifax consumer credit information with dealer and vehicle data from third-party data sources to enable Westlake and other auto finance companies to assess their dealer network and establish peer benchmarks to help evaluate dealers credit risk.

“We’re happy to use this new product to help us drive well-informed business decisions and develop and adjust strategies so we can more accurately understand the performance and behavior of our dealership network,” said Ian Anderson, group president of Westlake Financial.

“Since TradeSight comes with detailed loan-level data and four years of history, Westlake was able to benchmark ourselves against our various competitors and adjust our go-to-market strategy as a result,” Anderson continued.

Equifax delivers a powerful combination of data via TradeSight, including dealership names, firmagraphic information, purchased vehicle details and vehicle values and contract structure characteristics, including annual percentage rate, term, loan-to-value and loan performance metrics.

Additionally, the product provides pre-configured categories such as bank, captive, credit union, independent auto finance companies, buy-here, pay-here information and more.

Equifax also mentioned that TradeSight differs from other products in the marketplace in that it can merge all of the data into a single platform, which can be used by auto finance companies to monitor market share, contract structure, vehicles purchased, the selling dealership and how the paper performs.

“By providing comprehensive analytics from a single platform, TradeSight will help Westlake Financial continue to compete at a high level and establish even stronger relationships with dealers in order to profitably grow their portfolio,” said Lou Loquasto, vice president of auto finance and dealer vertical at Equifax.

Westlake programs for employee development

In other company news, Westlake recently launched another chapter of what it’s dubbed the Westlake Certification Program for employees interested in expanding their skill-set for potential career advancement.

Westlake’s certification curriculum consists of four levels that participants must complete in order to receive certification. Over nine months, weekly classes cover data tools, communication, culture and environment, and leadership. Each class is led by a Westlake Financial Services subject matter expert on the topic and is usually a manager, director or executive.

Also, individual participants are paired with a mentor within the organization who dedicates a minimum of four hours per month to assist the participant in completing individual and group assignments, presentations and homework throughout the program.

“This program was designed to provide employees opportunities for growth, one of Westlake’s core values. An on-site learning opportunity to help employees advance their skills is just one of the many advantages of working at Westlake,” said Erika Angel, Westlake’s associate vice president of human resources.

“The curriculum will enhance and build skills while at the same time providing a launching ground for future Westlake leaders to learn the arts of business decision-making, communication, team building and implementation planning,” added Robert Engilman, Westlake’s senior vice president and chief compliance officer.

Westlake’s Certification Program is designed and overseen by Westlake’s corporate training and development department, as well as a council of five leaders in the organization.

“One of the company goals for 2017 was to offer employees a program emphasizing leadership development, so we revamped the existing Westlake University Program to include elements of culture, environment, and effective communication,” corporate trainer Dennise Carrera said.

“It then evolved into its own certification program promoting ethical behavior, organizational change management, leadership development, and self-improvement,” added Claudia Corleto, manager of corporate training.

This year’s program commenced in March with the first group of 19 participants on track to receive certification in December of this year.

“We recognize the high level of effort required to complete this program. Dedication to professional growth, as well as juggling responsibilities of full-time positions and life outside of work are paramount to successful completion. We have a congratulatory luncheon when participants complete each level, and we reward top performers in the program,” said Bret Hankey, executive chairman of Westlake Financial.

The council will begin accepting internal employee applications via Westlake Intranet for the 2018 Certification Program in the first quarter of 2018.

As a separate program, the company provides Westlake University to all Westlake employees as another opportunity for learning. In the Westlake University program, employees can advance their skills in public speaking, Excel and SQL.

Employees are encouraged to sign up for these classes via an email sent by corporate training each month.

FICO looks to optimize deal structures with new tool

SAN JOSE, Calif. - 

FICO now has more than just a consumer credit score to offer auto finance companies during the origination process.

Leveraging its deep analytic expertise coupled with advanced algorithms and the latest optimization technology, FICO recently highlighted its new automotive industry-specific loan origination solution can enable auto finance companies to evaluate millions of alternative offers instantly to compete for business aggressively without compromising risk standards, growth targets or compliance requirements.

The new tool impressed Anil Goyal, who is senior vice president of automotive valuation and analytics at Black Book.

“This innovative FICO solution brings advanced analytics in real-time to the origination processes. Lenders can discover thousands or possibly millions of offer alternatives to deliver the most appropriate offers to dealers and customers,” said Goyal, one of many experts slated to be a part of Auto Fin Con during Used Car Week beginning on Nov. 13 in Palm Springs, Calif.

“This solution allows for the integration of vehicle values and depreciation rate forecasts to enable lenders to estimate accurate loss projections and overall profitability while delivering the ultimate in choice to customers,” he continued.

As the automotive industry and vehicle-buying experience dramatically change, FICO insisted auto finance companies need to make data-driven lending decisions in real time.

In a recent report by Deloitte titled, "Financing the Future of Mobility: Auto Finance in the Evolving Transportation Ecosystem," the authors contend the digital disruption to origination and underwriting of auto financing is made clear.

“Historically, customers have rarely relished the process of initiating a loan, with its reams of paperwork and long wait times at the dealership. That's already beginning to change, as auto retailers look to adopt customer-centric omnichannel retail models,” the report said.

Ken Kertz, senior director of the FICO auto practice, elaborated on those points and noted where FICO’s new tool comes into play.

“Today’s digital-first consumers expect simplicity and instant gratification at every touchpoint of their car buying journey. Given increasingly fierce competition, dealers must be equipped to deliver instant, compelling, profitable and flexible financing offers across digital channels and in the dealership” Kertz said.

“By enabling finance companies to balance competing priorities with an analytically-driven approach, satisfied customers will be able to actually drive cars off the lot instead of being bogged down by burdensome paperwork or greedy deal terms,” he went on to say.

Leveraging the power of the FICO Xpress Optimization Suite and FICO Origination Manager, this auto industry solution is designed to generate multiple optimized deal structures for approved applicants, giving the customer and the finance professional greater flexibility to balance competing business outcomes (such as lowering risk or winning market share), as well as negotiate and instantly adjust the terms of the loan (length, interest rate, or monthly and down payments).

At the core of this offering is a sophisticated decisioning engine that enhances productivity and profitability for finance companies by enabling them to respond to applicants instantly, eliminate negotiation turnaround times, manage risk and significantly reduce manual paperwork.

For more information, watch a video here or at the top of this page, and go to www.fico.com/en/auto-lending.

Q2 delinquencies rise while industry is ‘recalibrating’


Stemming from subprime financing activity, TransUnion’s Q2 Industry Insights Report showed the magnitude of diminishing originations and rising delinquencies.

Or as Brian Landau, senior vice president and automotive business leader for TransUnion, explained it to SubPrime Auto Finance News this week: “This is just normal course of the industry recalibrating.”

For the first time since 2012, TransUnion found that originations to subprime consumers declined year-over-year for a number of major credit products, including auto financing. The report, powered by Prama analytics, determined that 4.63 million subprime consumers originated a vehicle installment contract or lease, personal loan or credit card in Q1. Comparatively, 4.89 million subprime consumers originated one of these products in Q1 2016.

“Across product lines, we saw a decline in subprime originations at the beginning of 2017, and for the first time in a number of years we observed this for consecutive quarters,” said Ezra Becker, senior vice president of research and consulting for TransUnion.

“Immediately following the recession, many lenders pulled back on subprime originations to control delinquency,” Becker continued in a news release. “As the economy recovered, lenders loosened their underwriting standards and allowed more subprime consumers greater access to credit.

“It appears that this trend may now be changing, though it is a much different environment than what we observed just after the recession. The economy is performing well, and after several years of increased subprime lending, some lenders may simply be taking a pause,” Becker went on to say.

When it comes to consumers being behind on their monthly payments, TransUnion’s latest Industry Insights Report found that the auto delinquency rate reached 1.23 percent in Q2 of this year, an increase of 10.8 percent from 1.11 percent in Q2 of 2016.

“For the past several years, lenders have offered more financing opportunities to non-prime consumers,” Landau said. “As a result, we expected to see a slight rise in delinquency. It’s important to note that we still remain at very low levels of auto delinquency, but we will continue to monitor this trend.

“This is the normal course of what to expect to happen next,” Landau added during a phone conversation ahead of the report’s release. “Right now we’re seeing lenders more prudent and proactive in terms of scaling back to manage the risk, more so than they probably did in 2008. That is playing out right now. It didn’t surprise me that the uptick showed up on the most recent quarter. I’m sure if you talked to many lenders, they would say that they continue to fine tune and calibrate the managed risk in their portfolio. This may be going on for another few quarters.”

Among finance companies that report their results publicly, a few have pointed to the 2015 vintage as a potential source of their delinquencies. SubPrime Auto Finance News also asked Landau about what TransUnion’s data shows regarding the performance of paper originated at that time.

“When I look at our analysis of vintages going back to 2010, you see the deterioration of loan performance throughout the years,” Landau said. “We’re seeing this migration in terms of the uptick in delinquencies. That trend continues.

“What I could say about 2015, in particular, (is that) there were some macro-effects that could have impacted that particular vintage,” he continued. “We talked about the oil shock in states like Texas and Oklahoma where there is a high penetration of subprime and non-prime. The performance of the loans originated in those states was a little bit not on par with the others. That could be one reason for it.”

Viewed one quarter in arrears, TransUnion indicated auto finance originations declined to 6.73 million in Q1, down 2.9 percent from 6.93 million in Q1 2016. This marks the third consecutive quarter of year-over-year declines in auto originations and the first decline in origination growth in any first quarter since 2010.

“Lenders have also raised concerns about the downward pressure on used-car values, and we are beginning to see this impact origination growth,” Landau said. “Despite this decline, total auto balances continued to increase in the second quarter of 2017.”

Total auto balances achieved a new high in Q1, reaching $1.145 trillion, according to the report. The total balance was up 6.9 percent from $1.072 trillion in Q1 2016.

Personal loan activity

Another segment where subprime activity is prevalent is within personal loans as some auto finance companies have a division that caters to this space, too.

In Q1, TransUnion determined subprime personal loan originations declined 10.6 percent year-over-year, compared to a positive annual growth rate of 11.0 percent in Q1 2016. This development marks three straight quarters of year-over-year declines in originations.

More than 100,000 fewer subprime consumers opened a personal loan in Q1 2017 than in Q1 2016, according to TransUnion.

In fact, the credit bureau pointed personal loan originations declined for all risk tiers, but at lower rates than for subprime originations. Total originations dropped 6.9 percent from 2.99 million in Q1 2016 to 2.78 million in Q1 2017.

“A combination of factors have influenced the decline in subprime personal loan originations. For example, FinTech lenders faced funding challenges in Q2 2016,” Becker said.

“After years of growth in auto lending for subprime consumers, not surprisingly we observed an uptick in auto delinquency. Higher delinquency rates have long been anticipated as the result of that credit expansion. The reduction in subprime auto lending is a natural reaction to the emergence of that increased delinquency,” he continued.

In the second quarter of this year, the personal loan delinquency rate declined to the lowest level since 2009. The delinquency rate was 3.02 percent in Q2, an 8.5 percent decline from 3.30 percent in Q2 of last year.

“After a difficult 2016 for many FinTech lenders, we observed growth and stabilization in key metrics such as balances, delinquency and consumer participation,” said Jason Laky, senior vice president and consumer lending business leader for TransUnion. “More than 16 million consumers now have a personal loan, and we expect this trend to continue as more banks and credit unions re-enter the personal loan market.”

Personal loan balances achieved a new milestone of nearly $107 billion in Q2, growing 10.8 percent above the same point a year ago when total balances were $96 billion.

While balances increased, the growth rate was lower than the average Q2 growth rate of 24.7 percent for the past three years. The average balance per consumer also reached a new high at $7,781 in the second quarter, up slightly from $7,745 in Q2 2016.

“The personal loan market continues to grow, but with the pullback in non-prime originations offset by a shift toward prime plus and super prime consumers,” Laky said.

“At the beginning of 2017, the larger loans taken by the most creditworthy consumers helped drive balance growth and higher average borrower debt, while lowering overall delinquency,” he went on to say.

2 factors hurt Nicholas Financial’s quarterly originations


Nicholas Financial acknowledged two elements combined to erode its originations during its most recent quarter that closed on June 30, but the subprime auto finance company is remaining steadfast in its strategy to maintain discipline during challenging market conditions.

The figures Nicholas Financial reported included diluted earnings per share decreasing 73 percent to $0.10 as compared to $0.37 for the three months ended last June 30. The company’s net earnings were $0.8 million and $2.9 million as of that date in 2017 and 2016, respectively.

The company also indicated quarterly revenue dropped 3 percent to $22.2 million.

Nicholas Financial explained net earnings were adversely affected primarily by an increase in the provision for credit losses due to higher charge-offs and past-due accounts along with a reduction in the gross portfolio yield. The company’s total delinquency rate stood at 12.2 percent at the close of the last quarter, up from 7.66 percent a year earlier. The total outstanding balance associated with those delinquent contracts that range from 31 days past due to more than 90 days rose to $58.18 million, which constitutes a jump from $37.05 million a year ago.

And the company’s net charge-off percentage rose from 7.51 percent to 9.54 percent.

“Additionally, several negative factors continue to put pressure on our net earnings, including an extremely competitive market, higher than expected losses and a continuous decline in auction proceeds,” Nicholas Financial said in its quarterly report. “We remain cautious with respect to near-term losses as delinquency percentages remain elevated.”

Meanwhile, originations tumbled in the most recent quarter, too.

Nicholas Financial purchased 2,349 contracts in the quarter that finished on June 30 worth $27.16 million. During the comparable three-month span last year, the company originated 3,517 contracts representing $40.83 million in outstanding balances.

Many of the other metrics associated with the company’s latest originations remained similar year-over-year, including:

—APR: 22.31 percent as compared to 22.39 percent

—Average discount: 7.56 percent as compared to 7.15 percent

—Average term: 55 months as compared to 57 months

—Average balance: $11,563 as compared to $11,609

Nicholas Financial held a total of 36,174 active contracts as of June 30.

“Throughout this past quarter, we continued to experience intense competition from existing market participants. During this same time period, automobile dealerships, which the company conducts business with, have reported declining sales," Nicholas Financial president and chief executive officer Ralph Finkenbrink said, who announced his retirement would come when the company closes its fiscal year on Sept. 30.

“The combination of robust competition, fewer applications received by the company for potential loan approval and recent changes by the company to its underwriting guidelines has led to a 33-percent reduction in contracts acquired during the three months ended June 30 as compared to the three months ended June 30, 2016,” Finkenbrink continued.

“We will not expand the number of contracts purchased by incurring risk that are not priced appropriately and not conducive to providing long-term sustainable value. These ongoing market conditions require us to gain momentum regarding our ability to adapt to a competitive cycle that, for the foreseeable future, gives no indication of subsiding,” he went on to say.

“For us, that involves further evaluation of our current business structure, as well as, our overall operating strategy,” Finkenbrink added.

Credit Acceptance has long-range hopes for sales force


As the company acknowledged an inquiry from the Consumer Financial Protection Bureau, Credit Acceptance leadership discussed its sales force during a good portion of its latest conference call with investment analysts.

Credit Acceptance shared as a part of its second-quarter finance report that the company expanded its sales team by “roughly” 20 percent year-over-year in an effort to broaden its active dealer network, which stood at 7,635 as of June 30. On the same date a year earlier, the figure stood at 7,181.

The company classifies active dealers as ones who have received funding for at least one contract during the quarter.

Chief executive officer Brett Roberts described the volume of active dealers joining the company’s network as “OK,” acknowledging the 910 stores to sign up during the second quarter marked a 13.9-percent improvement versus the same quarter a year ago.

“But sequentially we had a decline in active dealers,” Roberts said. “So I guess the goal, obviously, is to sign up more dealers than we’re losing. We didn’t do that in Q2, but we hope to do that in the future.”

The company also noted its dealer attrition rate deteriorated slightly in Q2, rising to 21.5 percent. A year earlier, the rate stood at 17.5 percent.

Credit Acceptance defines attrition according to the following formula: Decrease in consumer loan unit volume from dealers who have received funding for at least one dealer loan or purchased loan during the comparable period of the prior year but did not receive funding for any dealer loans or purchased loans during the current period divided by prior year comparable period consumer loan unit volume.

Roberts pointed out that Credit Acceptance’s current sales team is double the size of what it had been a few years ago, and the company is expecting to “increase it a little bit more.”

Roberts told conference call participants, “I think if you look at the last time we increased the sales force, it took us about two years to roughly double the sales force, and really, almost three years before productivity got to where it was before we started the expansion. So it was overall about a five-year process to double the sales force.

“We’re not trying to double it this time, and hopefully, we’ve learned a little bit from the first time. But it’s still more of a long-term driver than a short-term driver,” he continued.

With a larger team comes more expenses. Credit Acceptance reported for Q2 that its 11.9 percent or $6.5 million increase in operating expenses stemmed from an increase in salaries and wages expense of $2.6 million, or 8.6 percent. This was primarily related to our servicing function as a result of an increase in the number of team members along with an increase in sales and marketing expense of $2.5 million, or 21.0 percent, due to an increase in the size of its sales force.

Roberts explained that having a robust sales force can help Credit Acceptance navigate the challenges of a competitive auto-finance landscape.

“Our outlook is that we're planning on the current difficult environment lasting for the foreseeable future,” Roberts said. “And if that turns out to be too pessimistic, then that’s great. But that’s what we’re planning for. And so I guess we look at the numbers. We feel like our chances of growing are a lot better if we have a little bit larger sales force, so that's what we're working toward.

“We had two quarters of negative unit volume change. And this quarter was up, but it was only up 1 percent,” he continued. “I don’t think that the additions to the sales force really added much to that at this point. They’re very new. They’re still getting up to speed. And I think, again, the increase in the sales force is something that will pay off next year or the year after. Probably not this year.”

Overall performance

As Roberts mentioned, Credit Acceptance generated a 1-percent year-over-year lift in origination volume during the second quarter. The amount financed grew by a larger amount, 7.1 percent year-over-year.

“Dollar volume grew faster than unit volume during the second quarter of 2017 due to an increase in the average advance paid per unit,” the company said. “This increase was the result of an increase in the average size of the consumer loans assigned primarily due to an increase in the average initial loan term and an increase in purchased loans as a percentage of total unit volume, partially offset by a decrease in the average advance rate due to a decrease in the average initial forecast of the consumer loans assigned.

“While we were able to grow unit volume modestly during the most recent quarter after two quarters of declines, our overall progress in growing unit volumes has slowed considerably over the last six quarters,” Credit Acceptance officials continued. “This trend reflects the difficulty of growing the number of active dealers fast enough to offset the impact of the competitive environment on attrition and per dealer volumes.

“In addition, in response to the decline in forecasted collection rates experienced in 2016, we adjusted our initial collection forecasts downward during 2016. While the adjustments have been modest, we believe these adjustments have had an adverse impact on unit volumes,” the company went on to say.

All told, Credit Acceptance reported that its Q2 consolidated net income came in at $99.1 million, or $5.09 per diluted share, up from $84.9 million, or $4.17 per diluted share, for the same period in 2016.

After seeing the top-line metrics, the investment community pushed Roberts for some clarity on how Credit Acceptance portfolio vintages are performing in an effort to spot future trends.

I think that the clearest number to start with if you're trying to understand loan performance is the net cash flow change for the quarter that’s disclosed,” said Roberts, who noted that the company’s Q2 total net cash flow change was $8.8 million. “It’s a positive number, but it’s obviously a very small one.

“The total undiscounted cash flows that we’re attempting to forecast are somewhere around $5.8 billion,” Roberts continued. “So when you have an $8.8 million move, that’s basically flat.”

After the analyst rephrased the question, Roberts added, “Again, I think the main takeaway is if you’re looking at $5.8 billion in cash flows we’re trying to forecast, if you look at the results for this quarter or really over the last six quarters or even longer than that, the cash flows have been remarkably stable. So I think that's a good thing, and that’s really the main takeaway

CFPB matters

Credit Acceptance stated its quarterly filing with the Securities and Exchange Commission that the company now is contending with an inquiry from the CFPB along with ongoing actions involving the Federal Trade Commission and Maryland’s attorney general.

“As of June 2017, we were informed that the Consumer Financial Protection Bureau’s Office of Fair Lending and Equal Opportunity is investigating whether the company may have violated the Equal Credit Opportunity Act and Regulation B,” Credit Acceptance said in its SEC filing.

“We are cooperating with the inquiry and cannot predict the eventual scope, duration or outcome at this time. As a result, we are unable to estimate the reasonably possible loss or range of reasonably possible loss arising from this inquiry,” the company continued.

During the conference call, Wall Street observers asked Roberts to elaborate about what the CFPB inquiry is entailing.

“We don’t have a lot to add to what's in the (filing),” Roberts said. “The CFPB is fairly sensitive regarding disclosures of ongoing matters, so we try carefully to walk the line between our obligations to the SEC and to shareholders and the sensitivities of the CFPB. So I won’t try improve upon what we put in the (filing).”

The filing indicated that the inquiry from the FTC stems from Credit Acceptance allowing dealers to use GPS and starter interrupt devices while Maryland’s attorney general is looking into the company’s repossession and sale policies and procedures within the state.