My oh my, this COVID-19 virus thing is not a good thing. It’s not good. It’s bad for business. It’s also been a bad thing for our personal lives. Hopefully, you and your family have fared well through this crisis. Now, what to do?
While I suspected that buy-here, pay-here delinquency would go up from the norm, I also specifically remember that during our last economic crisis in the 2009-2012 period, which was brought on by the subprime mortgage industry, subprime auto loans performed much better than expected. Candidly, the subprime auto finance industry never lowered its underwriting standards to the level that the subprime mortgage finance industry did. However, the terrible thing that happened was that the state and federal regulators decided the term “subprime” was very bad, regardless of having any factual proof of auto loan deterioration.
Two memorable things happened — many BHPH dealerships lost their lines of credit with banks due to regulatory pressure on the banks, and BHPH sales activity picked up due to mainstream subprime auto finance companies raising their credit requirements as they were getting pressure from their line of credit providers.
On the first issue, BHPH dealerships with perfect performance records with their banks had their lines of credit suspended due to regulatory pressure from the bank regulators. On the second issue, consumers who needed to or wanted to upgrade their vehicle found that the used-car departments of franchise dealerships couldn’t get their previous customers financed due to the change in the credit requirements of their usual mainstream subprime finance companies.
In an unexpected turn of events, many of these “standard” subprime auto customers turned to the BHPH community to replace their vehicle – and found a willing dealer ready to help them. Many BHPH dealerships developed lasting relationships from those times. The most successful dealerships were the ones with the ability to take a 10-year-old trade-in on a 5-year-old replacement vehicle.
In the fall of 2012, Standard & Poor’s, one of the credit rating agencies for auto backed securitizations (ABS), published a paper praising the performance of the mainstream auto finance companies’ ABS pools of auto loans. There had been no rating downgrades of auto securitizations during the recession of that period. Quoting from “Is The U.S. Subprime Auto Loan ABS Market Headed For A Repeat Of The 1997-1998 Contraction? We Don’t Believe So,” published by Standard & Poors Rating Services, Sept. 19, 2012:
“Despite the recent credit crisis, subprime auto ABS rating performance has been strong. We raised the ratings on many of these transactions and did not lower any ratings due to deteriorating collateral performance. The only downgrades resulted from downgrades on the related bond insurers.”
While the subprime mortgage industry was melting down, the subprime auto finance industry was performing! This result begged for an explanation. Certainly oversimplified, but the fact was that people could let their homes be foreclosed on because they could go rent a house or apartment. And, the incidence of mortgage foreclosure was so high that it wasn’t even too humiliating.
However, to continue to live and function in society, consumers in practically the entire United States, need to have transportation available – not just for recreation, but to continue their lives. Going to work, going to church, going to the grocery store, etc., all require transportation. Around 78% of the population of the United States lives in cities of fewer than 100,000 people — no subways, very little public transportation of any type. Hence, vehicles are required.
While the preceding is about the old crisis, it points out that subprime dealers’ finance contracts did not fail on a blanket basis. In fact, the successful BHPH dealers found new customers – it was just a matter of marketing. In this crisis, funds being made available by the CARES Act for businesses and consumers are being used to some extent for vehicle/transportation purposes.
The current crisis is probably going to present a similar opportunity. Already, mainstream subprime finance companies are talking about raising their credit standards, insisting on higher down payments, and tightening their loan-to-value requirements. To be able to take advantage of this opportunity, funding is vital, and this is where Agora Data, Inc comes into the current picture in a big way.
With Agora Data’s AgoraInsights product, so long as your dealership owns a portfolio of retail installment credit agreements (finance contracts), you have access to capital for the funding needs of your business. Funding can be used for any financial need — inventory, capital improvements (build or repair a building, paving, lighting, fencing), reducing lines of credit balances, opening a new location, paying vendors, taxes, etc. And, the funding is not in the form of a loan — you would just be exchanging one asset, some portion of your receivables, for another — cash. The amazing thing is that our process is neither difficult nor lengthy.
Reach out to one of our finance experts at www.agoradata.com, send a message to [email protected], or call (877) 592-4672 for more information.
Jim Bass has served in the subprime auto finance industry for more than 25 years. He is a founder of the National Automotive Finance Association, and has served in several capacities including president, chairman, and is currently an executive committee and board of directors member. He was the recipient of the National Automotive Finance Association’s first Industry Excellence Award at the annual NAF Conference on June 2, 2010. Jim is a frequent speaker at auto finance conferences as well as a contributing author in auto finance industry trade publications. He is licensed as a certified public accountant in Texas and resides in Arlington, Texas. This commentary originally appeared here.
Byrider is looking to help first responders who are on the frontlines in the fight against COVID-19 have reliable transportation by offering a special discount toward a vehicle purchase through the end of May.
The network of buy-here, pay-here dealerships said on Wednesday that active first responders can receive $500 to $750 off the purchase of a vehicle with proof of employment until May 31 at participating Byrider locations.
Byrider defines first responders to include paramedics, emergency medical technicians, police officers, firefighters, rescuers, military personnel and other trained members of organizations connected with this type of work.
“At Byrider, we wanted to say thank you. With this initiative, we hope to make it more attainable for first responders to secure the reliable transportation they need to get to their important jobs and safely return home to their families at the end of a long shift,” Byrider chief executive officer Craig Peters said in a news release.
“It is simply our way of showing appreciation for the courageous work they are doing every day to keep people safe in our communities,” Peters continued.
The offer will be available at all 31 company-owned Byrider locations in addition to select franchise stores. A complete list of participating locations includes:
Illinois
Byrider Peoria
Indiana
Byrider Muncie
Byrider Richmond
Byrider Anderson
Byrider Bloomington
Byrider Columbus
Byrider Evansville
Byrider Fort Wayne
Byrider Kokomo
Byrider Greenwood
Byrider Indianapolis
Byrider Lafayette
Byrider Indianapolis
Byrider Mishawaka
Byrider Merrillville
Kentucky
Byrider Louisville
Byrider Florence
Ohio
Byrider Lima
Byrider Columbus
Byrider Columbus
Byrider Fairfield
Byrider Cincinnati (Beechmont Avenue)
Byrider Cincinnati (Broad Street)
Byrider Columbus
Byrider Boardman
Byrider Dayton
Byrider Cleveland
Byrider Toledo
Byrider Maumee
Byrider Amherst
Byrider Parma
Byrider Bedford
Byrider Akron
Byrider Euclid
Byrider Mansfield
Byrider Wooster
Byrider Canton
Byrider Ashtabula
Pennsylvania
Byrider Hermitage
Byrider Pittsburgh (Liberty Avenue)
Byrider Pittsburgh (McKnight Road)
Byrider Monroeville
Byrider Erie
Tennessee
Byrider Madison
Byrider Murfreesboro
In order to adapt to new social distancing restrictions, Byrider highlighted that its stores added precautions to make the vehicle-buying process as safe as possible for customers and employees. Customers are able to shop inventory online before coming to the store, and whenever possible during their visit, interactions will be limited to one-on-one with communication and payment occurring on mobile devices.
Additionally, Byrider mentioned its stores increased cleaning of common areas, employees meet all CDC handwashing guidelines and vehicles are sanitized before they go on the lot, post test-drive and before delivery.
The newest information from the American Bankruptcy Institute (ABI) possibly shows the positive impact of federal intervention to support consumers and businesses during the coronavirus pandemic.
According to data provided by Epiq Systems and released on Tuesday, total U.S. bankruptcy filings in April decreased 46% from the previous year. ABI said bankruptcy filings totaled 38,428 in April, down from last April total of 71,303. The 36,150 consumer bankruptcy filings in April were down 47 percent from last April’s consumer total of 67,802.
Officials noted total commercial filings decreased 35% in April, as the 2,278 filings declined from the 3,501 commercial filings registered in April of last year. Conversely, ABI pointed out total commercial Chapter 11 filings jumped 26 percent to 560 in April from last April’s total of 444.
“The extraordinary measures taken by Congress and the administration to assist individuals and businesses weather the initial economic shock caused by the pandemic have likely staved off bankruptcy filings to date,” ABI executive director Amy Quackenboss said in a news release.
“As financial challenges continue to escalate amid this crisis, bankruptcy is sure to offer a financial safe harbor from the economic storm,” Quackenboss continued.
ABI recently launched its new COVID-19 resources website for bankruptcy professionals and the public to access essential information and analysis regarding the financial distress being inflicted by the COVID-19 pandemic. The site features exclusive ABI content on the crisis, recommended member analysis, industry sector news, charts and more.
Officials went on to mention April’s total bankruptcy filings represented a 39% decrease when compared to the 62,866 total filings recorded during the previous month.
ABI added total noncommercial filings for April also represented a 39% decline from the March noncommercial filing total of 59,684.
The latest data also showed the commercial filing total represented a 28% decrease from the March commercial filing total of 3,182. Commercial Chapter 11 filings increased 6% from the 530 filings in March.
Finally, officials said the average nationwide per capita bankruptcy filing rate in April was 2.09 (total filings per 1,000 per population), a decrease from the 2.29 filing rate during the first three months of the year. Average total filings per day in April came in at 3,239, a 3% decrease from the 3,323 total daily filings in April of last year.
States with the highest per capita filing rates (total filings per 1,000 population) in April included:
1. Alabama (5.02)
2. Tennessee (4.44)
3. Mississippi (3.99)
4. Georgia (3.78)
5. Delaware (3.52)
ABI has partnered with Epiq Systems, a leading provider of managed technology for the global legal profession, in order to provide the most current bankruptcy filing data for analysts, researchers and members of the news media.
Ignite Consulting Partners has dealership clients not only in its home state of Texas, but nationwide. And the firm has been communicating with those operators daily throughout the crisis, discussing disaster plans and more.
Chief legal and compliance officer Steve Levine joined senior editor Nick Zulovich for this podcast episode to share several uplifting anecdotes about how resilient dealers have been during the coronavirus pandemic, offering resources that might help other operators, too.
To listen to this episode, click on the link available below, or visit the Auto Remarketing Podcast page.
Download and subscribe to the Auto Remarketing Podcast on iTunes or on Google Play.
While the latest overall auto-finance default reading came in at the lowest point in the past 10 years, Agora Data tried to generate more clarity about delinquency specific to the buy-here, pay-here industry.
Through which AgoraInsights shared exclusively with BHPH Report this week, Agora Data used its newest feature to track the impact of COVID-19 since the beginning of the pandemic by analyzing the daily data from hundreds of millions in principal balance and hundreds of thousands of individual contracts originated by BHPH dealers.
Agora Data explained one of the leading indicators to default is contractual delinquency, which analysts clarified as the customer is deemed late per the agreement with the BHPH dealer and according to the terms of the installment contract.
The following chart notes contractual delinquency with the best period measured during the pandemic on March 18 and the worst period on April 13.
| Delinquency Bucket |
March 18 |
April 13 |
April 20 |
| Current |
64% |
55% |
59% |
| 1 to 29 days |
24% |
30% |
26% |
| 30 to 59 days |
8% |
10% |
11% |
| 60 to 89 |
4% |
4% |
4% |
Source: Agora Data
Agora Data discovered contractual delinquency between March 18 and April 20 has migrated mostly negative, “although we have seen a modest improvement from the low observed on April 13.”
Analysts also are monitoring delinquency on a recency basis. They described recency as being the days since an actual payment is made. The following rundown shows recency for the same observed period:
— March 18: 19 days
— April 13: 22 days
— April 20: 21 days
“Recency will remove the noise created by deferments,” Agora Data said. “For example, an underlying borrower may have made his March 10th payment and then received a deferment for his April 10 payment. In that example, the borrower would show as contractually current but would be in the 1-29 days delinquent on a recency basis.
“Such use of deferments likely explains the improvement in contractual delinquency from April 13 to today where accounts that were in the 1-29 bucket on April 13 rolled back to current on a contractual basis as of April 20,” analysts added.
Agora Data also pointed out that overall, the observed portfolios have a two-day average increase (deterioration) in recency.
The firm closed this data update with a recommendation for BHPH dealers.
“While overall recency has not gapped out too materially, nevertheless, BHPH dealers need to keep an eye on both metrics of delinquency as they manage through this crisis,” Agora Data said. “It requires careful handling of your underlying customers while simultaneously assessing the overall health of your portfolio.”
The past six weeks have represented one of the busiest stretches ever experienced by the National Independent Automobile Dealers Association because of the coronavirus pandemic.
NIADA senior vice president of legal and government affairs Shaun Petersen returned to the podcast, updating senior editor Nick Zulovich about an array of initiatives the association launched to help dealers as well as sharing some anecdotes about the creativity and resiliency of independent operators.
To listen to this episode, click on the link available below, or visit the Auto Remarketing Podcast page.
Download and subscribe to the Auto Remarketing Podcast on iTunes or on Google Play.
As much disheartening data surfaces nowadays connected with the coronavirus pandemic, results from the newest National Independent Automobile Dealers Association member survey offered some upbeat information.
According to the results released on Wednesday, NIADA highlighted independent dealers, for the most part, remain open for business — one way or another — and almost half of them have retained their entire workforce.
NIADA chief executive officer Steve Jordan said the survey results reflect the used-vehicle industry’s optimism and confidence in its ability to cope with the situation and come out strong on the other side, while serving those fighting the battle against the coronavirus on the front lines.
“The message is positive,” Jordan said in a news release. “Dealers are doing the best they can with the cards they’ve been dealt.
“They’ve done the math and they understand the financial impact of the situation. They’re hunkered down, reducing expenses and weathering the storm. For now, this pandemic has not put as many dealers out of business as we originally feared,” Jordan continued.
The COVID-19 Dealer Impact Survey of 880 operators conducted from April 11-14 showed 72% of the respondents are still open for business with social distancing protocols in place, many by appointment only or online.
NIADA discovered 27% of the dealerships reported having closed temporarily, and only 1% have closed permanently.
The association reported more than one in four independent dealers — 27% to be exact — said they are doing business as usual, while 37% indicated they are selling at the dealership by appointment only and 15% said they are selling online only.
In addition, the survey found 47% of dealers have kept their staffing level the same since March 1 — and 1% have actually added employees.
Of the 52% that have cut staff, 56% have reduced their level by more than half. But 85% of those dealers said they have furloughed those employees with the intent to rehire them.
NIADA indicated dealers who have kept their staff intact are likely expecting help in that regard from the federal government’s Paycheck Protection Program (PPP) loans. That’s evidenced by the survey, which found 100% of the respondents have applied for those loans.
So far, NIADA noted 21% of those applications have been approved or funded, and only 1% have been denied.
The association acknowledged PPP is by far the most popular government relief program among independent dealers. Only 46% of respondents said they have applied for the Small Business Administration’s Economic Injury Disaster Loan and just 13% have applied for SBA’s Express Bridge Loan.
NIADA research also found the majority of states and local jurisdictions are allowing auto sales to continue in some capacity during the pandemic, while taking steps to protect public health.
“This is a great example of how our industry has coordinated with policymakers — at both the state and national levels — to ensure used car dealers can continue serving their communities in a meaningful way to get through this pandemic,” Jordan said, “especially serving the health care workers, first responders, grocery store clerks and others on the front lines of this battle.”
To view the complete results of the NIADA COVID-19 Dealer Impact Survey, visit covid19.niada.com.
With millions of individuals losing their jobs during the coronavirus pandemic, auto-finance companies and buy-here, pay-here dealers with related finance companies often have been working with their customers on deferments and other payment modifications, triggering a host of questions about credit reporting.
To help, Equifax and the National Independent Automobile Dealers Association are hosting a free webinar to assist operators of all sizes about what they need to know about credit reporting during the COVID-19 pandemic. The session is scheduled for noon ET on Friday and set to feature:
— Shaun Petersen, senior vice president of legal and government affairs at NIADA
— Drew Rosedale, data contributor services leader at Equifax
— Jennifer Reid, vice president of strategy and marketing at Equifax Automotive
The COVID-19 has impacted virtually every aspect of personal and business life including the credit reporting marketplace,” NIADA and Equifax said. “The recently signed CARES Act includes measures related to reporting information during these times. The automotive industry is responding by leveraging credit reporting codes that are available for times of disaster to help mitigate the potential negative impact of late, missed, or deferred auto loan payments.
“Many lenders, buy-here, pay-here dealers, and new and used dealerships are rapidly instituting these programs to help consumers who have been financially impacted. The goal of the webinar is to provide the information you need to report consumer auto loan payments and answer consumers’ questions,” NIADA and Equifax went on to say.
Registration for the free webinar can be completed here.
The National Independent Automobile Dealers Association is seeking clarity from federal officials to help one of the most crucial parts of a buy-here, pay-here operator’s business — their related finance company.
According to a news release distributed on Monday, NIADA is calling on Congress and the Small Business Administration to open up the SBA’s Paycheck Protection Program to the related finance companies of BHPH dealers.
In letters sent to SBA administrator Jovita Carranza, Congressional leaders and Senate Small Business and Entrepreneurship Committee chairman Marco Rubio, NIADA chief executive officer Steve Jordan said current SBA guidance that prohibits small finance companies from receiving PPP loans “clearly conflicts” with the intent and language of the statute that created the program.
The association recapped that Section 1102 of the CARES Act states “any business concern … which employs not more than 500 employees shall be eligible” for PPP loans, which are intended to allow small businesses to keep their employees on the payroll during the COVID-19 crisis.
NIADA called for the SBA to amend its rule to make all legal businesses with 500 or fewer employees eligible for PPP loans.
In the letters, Jordan specifically made the case for BHPH dealers, who often provide financing to credit-challenged or credit-invisible consumers who cannot get financing from banks or other traditional finance sources, through a related finance company (RFC).
While the dealership entities are being approved for PPP loans, RFCs, which do nothing more than hold and service the paperwork in the dealerships’ financing arrangements with their customers, “are routinely denied,” the letters said, as lenders cite the SBA guidance excluding finance companies from the program.
“Just like their dealership counterparts, virtually all RFCs are small businesses under every criteria of the SBA,” Jordan said. “Across the country, BHPH dealers and their RFCs are serving the transportation and financing needs of essential personnel battling on the front lines of the COVID-19 crisis, including medical personnel, first responders, supply chain workers, grocery store clerks and others.
“But in order to keep those essential personnel driving to and from their much-needed jobs, both BHPH dealers and their RFCs need help in the form of liquidity to keep their employees on the payroll and the lights turned on,” Jordan continued.
“They need to be eligible for Paycheck Protection Program (PPP) loans as the CARES Act intended,” he went on to say.
To view the letters and find more information about NIADA’s response to the COVID-19 pandemic, visit covid19.niada.com.
Amid the crisis, the National Independent Automobile Dealers Association reinforced its stable of partners this week.
According to an announcement from NIADA, PrimaLend Capital Partners, a Dallas-based commercial lender, has teamed with the association as a new Bronze-level National Corporate Partner.
PrimaLend provides revolving lines of credit and inventory floorplans to independent auto dealers nationwide.
NIADA highlighted that PrimaLend is a “uniquely responsive, high-service organization” that can allow dealers to focus on selling more vehicles and developing stronger relationships with their customers, helping its dealer partners grow their buy-here, pay-here portfolios and build equity in their businesses.
PrimaLend Capital is founded on the principle that independent dealers can become dramatically more profitable if they retain their retail installment contracts and continue to service and collect those accounts to maturity.
“We help our dealer partners grow their BHPH portfolios and build equity in their businesses,” PrimaLend chief operating officer Paxton Wright said, “as opposed to spending time and resources selling cars only to have others profit from the collection of those accounts.”
NIADA director of business development James Gibson called PrimaLend “an excellent resource for our members to access the capital needed for all of their vehicle acquisitions.”
Gibson added, “PrimaLend has been meeting the financial needs of independent dealers since 2007, and in today’s competitive landscape it is increasingly important that we have partnerships with companies positioned to help our members grow their business.”
