Of the 21 different training sessions the National Alliance of Buy-Here, Pay-Here Dealers (NABD) is organizing for its next conference, there are a trio of segments that might be most beneficial to operators looking to build a larger and stronger portfolio of paying customers.
Along with conference keynote speaker Steve Siebold, it’s all on tap for NABD’s Orlando BHPH Conference titled “Opportunity Knocks – Best Ways to Respond.” Dealers can still secure registration discounts through Friday for the conference that begins on Oct. 23 at the Rosen Centre in Orlando, Fla.
While Siebold offered a glimpse of his presentation in a video available here as well as at the top of this page, NABD highlighted all of its sessions, including the three that might give operators the strategy they need to grow their customer base.
LHPH – Another Alternative
Oct. 24 at 10 a.m.
Leasing is an important alternative business model in the competitive environment of today. What are the advantages and disadvantages of establishing a lease-here, pay-here business? What regulations apply to LHPH? Where can you find capital to finance a lease portfolio? How do you make these leases compliant? In this workshop, a panel of successful lease operators and experts explain how to do it correctly. NABD insisted longer terms and lower down payments are not the recipe for success. Learn how leasing can help to avoid these pitfalls.
Ways to Increase Your Sales
Oct. 24 at 4:15 p.m.
Competition for the best customers has made the BHPH industry more challenging than ever during the last two years. Franchised dealers, credit unions, special finance companies are all competing for the customers who normally land within the BHPH segment. In this workshop, Bill Neylan of Tax Max will explain how the tax refund market has changed and provide creative ways to gain or regain that business. Irregular payments can keep customers paying.
Best Underwriting Practices
Oct. 25 at 9:15 a.m.
Every BHPH operator wants to regain lost market share. Good underwriting is needed to avoid mistakes made in the past. Lower down payments, lower repayments, and longer terms are not the recipe for success. During this interactive panel you will learn how credit scoring, and credit bureau and alternative credit data will help you make better decisions. Chuck Bonanno, 20 group director for the National Independent Automobile Dealers Association, will explain what 20 group members are doing to get the best customers and keep vehicles sold.
For further information or to register, visit www.bhphinfo.com or call (832) 767-4759. Early registration discounts are available through Friday. NABD also has arranged $179 per night room rates at Rosen Centre with no resort fees while supplies last.
The past 24-month period has seen the highest level of subprime and deep subprime competition in history. Fueled by “cheap money” raised with Wall Street syndicated auto bond securitizations, the subprime auto finance market has grown to an estimated $200 billion.
Auto finance receivables, for both new and used vehicles, as of March 31 reached a record $1 trillion with $82 billion outstanding — the highest in history. The deep subprime market (credit scores below 550) has seen credit unions, franchised dealers, finance companies and others compete with independent operators for low credit score customers.
As a result, the independents have lost approximately 20 percent of their market share to credit unions and the captives that finance franchised operators.
Despite this highly competitive environment, “opportunity knocks” for the independents today.
Many of the deep subprime auto bonds are experiencing higher defaults, and repayment performance is deteriorating. Finance companies and captives have tightened underwriting and credit criteria in 2017 in an effort to reduce losses. Banks are under increased regulatory scrutiny to tighten credit standards and shift lending to higher credit quality customers. These changes will reduce competition in the subprime and deep subprime credit sectors in the future.
As subprime customers default they will return to the independents and their vehicle repossessions will be available at auctions.
The ability to capitalize on opportunity in the subprime finance market will be dependent upon the following:
1. Capital availability to grow and regain lost market share with the financial flexibility to accomplish it.
2. Efficient systems and processes that enable operators to increase originations without corresponding increases in overhead.
3. A proactive approach in connecting with customers previously lost to competitors who will now be needing transportation.
4. Good underwriting practices, which properly match the customer with a vehicle, they can afford over a reasonable payment term.
5. Good collection procedures, which keep each customer paying over the life of the contracts.
6. A compliance management system, which helps operators avoid regulatory and legal mistakes which can cost them millions.
7. Recovery operations which reduce losses when customer defaults occur.
8. Business models that maximize the cash return on their portfolio investment.
9. The right inventory to get the best customers back.
10. Knowledge of the latest rules and regulations and relevant training for their employees to operate successfully.
It sounds simple, but doing the above will not be easy. It starts with each operator’s commitment to address the items above in their own operations. Hoping the competition will go away is not a prudent strategy. Operators must be proactive to make 2018 a better year.
NABD’s upcoming BHPH Conference on Oct. 23 through 25 in Orlando’s Rosen Centre will focus on the opportunity in the subprime auto finance market, and suggest the best ways to respond to the current challenges. A sold out Solutions Hall will showcase capital providers and the newest products and services to help operators be more efficient and to maximize profits and cash flow. Industry technology has never been better but each operator must properly integrate it.
For further information, or to register, visit www.bhphinfo.com or call (832) 767-4759. Early registration discounts are available prior to Sept. 23. NABD has arranged $179 per night room rates at Rosen Centre with no resort fees while supplies last. Don’t miss this opportunity to prosper in subprime auto finance today. Good luck!
Ken Shilson is president of Subprime Analytics (www.subanalytics.com) and the National Alliance of Buy-Here, Pay-Here Dealers (www.bhphinfo.com). Subprime Analytics uses data mining to perform computerized portfolio analysis for operators and capital providers. NABD is the nation’s largest BHPH special interest group for operators and product providers with more than 13,000 members.
Our series continues now that we’ve identified “eight risk questions that might keep you up at night,” as well as how can we better identify risk as a buy-here, pay-here dealership.
An important aspect of lending is not only which accounts to watch but how to monitor them and develop a well-defined proactive workflow strategy.
Many investors use a risk/reward ratio to compare expected returns of an investment to the amount of risk undertaken to capture these returns.
Fundamentally, the concept is the same in consumer finance. How much risk is acceptable in order to realize a certain level of reward? Securitization lending is predicated on assessing risk. In theory securitizations permit lenders to accept more known business risk. There is a premium associated with higher risk factors. Facilitating this shift are more robust risk assessment models which provide analytical overview for those willing to accept elevated risk within a portfolio.
Examples are plentiful with respect to insurance industry and its approach to connecting aspects of risk to individual insurance policies.
As recently reported in The Economist: “Michal Kosinski of Stanford University and colleagues at Cambridge University recently found that computers which are fed a person’s Facebook ‘likes’ are better than a human analyst at predicting whether they smoke or take drugs. Such prying is just the beginning: Insurers speak with straight faces about a time when sensors in customers’ homes will alert plumbers to weak pipes before they burst, and glucose meters in contact lenses will keep a record of how healthily they are eating.”
Data mining and monitoring not only allow insurers to price policies more accurately, but also enable them to modify customers’ behavior. “I think of us as Big Mother,” says Brian Vannoni of Guidewire, a firm that analyses data for insurers.
Within the lending community measuring risk reward has similar yet different characteristics. Essentially, lenders from all segments of business want to understand what the elements of risk are associated with a particular decision to extend credit. Basic ground rules still apply within that process.
Extending credit means evaluating the 5 C’ which still apply:
The five C's of credit is a system used by lenders to gauge the creditworthiness of potential borrowers. The system weighs five characteristics of the borrower and conditions of the loan, attempting to estimate the chance of default. The five C's of credit are character, capacity, capital, collateral and conditions. The difference today is that a review of a potential borrower with respect to the five C’s is analytically compiled and is light years more predictable than what it was before using alternative data.
Risk reward analysis in consumer credit portfolios attempt to quantify elements of risk associated with the most likely outcome of a consumer behavior. The coordinated outcome of using analytical scoring models to approve or decline credit is first step. Having insight to the likelihood an account will default permits a lender to prepare for such an outcome.
The obvious next question is once approved which account represents the greatest risk of loss. If identified sooner can the behavior be modified to alter the projected course of events i.e. charge-off. But what if we could identify not only the individual element of risk but the degree of associated risk?
Specifically, as we discussed previously, identification of risk through the approval process permits an analytical segmentation of accounts which are stratified to the degree of severity. Thirty day delinquency cured with normal treatment strategies is much less troublesome than 90-day delinquency that is non- responsive.
If we could profile behavior before it occurs just as Mr. Kosinski at Stanford accomplished by predicting a certain behavior before it happens then we could use data segmentation to predict a financial loss to the institution?
Essentially, in a generic sense a correlation analysis provides a distribution of scores where above a certain score the applicant is approved and below it is declined. When approved at a certain scoring band there is correlated loss rate. If the score is raised the loss rate should decline. If the rate is lowered expected losses would increase. That is in theory.
The question is how frequently should these scores be recalibrated?
How often are they analyzed and compared to expected value models. And finally, are embedded scores working as projected?
Most companies use outside consultants to confirm those questions. Why bring engage consultants? Prevailing mindset is to ensure independent assessment and to minimize any unintended internal bias.
Greg Shelton is president at Partners Consulting, a management consulting firm specializing in operational assessments, workflow reviews and strategic planning for management teams in the accounts receivable management industry. Maria Singson is president and chief executive officer of twoMS.co, which offers risk and marketing analytics to help companies target profitable segments mitigate risks. Shelton can be reached at (678) 575-1136 or gshelton@partnersconsultingllc.com. Singson can be reached at MariaSingson@twoMS.com or (908) 499-4037.
Along with elaborating a bit about his upcoming retirement, America’s Car-Mart chief executive officer William “Hank” Henderson described how underwriting tightening in other areas of the auto-finance market is benefitting the chain of buy-here, pay-here dealerships.
The market change is improving not only the caliber of customer Car-Mart saw during the first quarter of its 2018 fiscal year that ended on July 31, but also the quality of vehicles the company is able to stock at its 140 stores.
“We’re seeing some customers circle back,” Henderson said during Car-Mart’s quarterly conference call with investors. “They’ve been over there and tried the other side, and now they’re back. And I think that’s evident and actually our sales for peak customers is maybe at an all-time high. It’s very high during this first quarter.
“And then also I think we’re, as we mentioned, doing a little better job with our inventory, seeing some improvements there. And so I think all those things combined help push up the store productivity,” he continued.
Car-Mart posted increased sales volume productivity with 28.2 retail units sold per store per month, up from 27.9 for the prior year quarter.
All told, the company’s stores retailed 11,837 vehicles during the quarter with an average retail price of $10,386.
“We are pleased with our continuing efforts to improve the quality of our inventory and improve inventory turns and efficiencies, and these efforts are having a positive effect and will continue to benefit us as we move forward,” Car-Mart president Jeff Williams said.
“We will remain aggressive with our inventory management, but we will ensure that we have a good selection of quality cars, trucks and SUVs in our dealerships to attract our target customer,” Williams continued.
“As credit gets a little tighter in the markets above us, the flow of product then in our market becomes much better,” he went on to say. “We’ve been in a period for several years now where the flow into our markets has been stuck. It's maybe the new-car dealerships because that financing has been available.
“So as it tightens up, we get a better flow of products, and we get to start cherry-picking a little bit,” Williams added.
A few other metrics of note from Car-Mart’s Q1 performance included:
—Gross profit margin percentage decreased to 41.4 percent from 41.8 percent for the prior-year quarter.
—Net charge-offs as a percent of average finance receivables stood at 6.4 percent, up from 6.2 percent for prior-year quarter.
—Accounts more than 30 days past due increased to 4.6 percent of the portfolio, up from 4.4 percent at close of the previous year’s quarter.
—Provision for credit losses came in at 26.6 percent of sales versus 25.7 percent for prior-year quarter.
More on executive transition
As BHPH Report previously published, Car-Mart also announced Henderson will retire as CEO at the end of the year with Williams replacing him. Henderson discussed the move again during the conference call.
“It has been an incredible fantastic experience to be part of such a great team of people to help and build and grow this company into what is today, and I feel truly blessed to have had this opportunity,” Henderson said.
“Tremendous amount of gratitude to the hard working dedicated people with such high characters that I have been so very fortunate to work with throughout this time,” he continued. “We’ve been through some great times, and we’ve been through some very challenging times all along the way.
“They fought hard to preserve our company culture, and I cannot even begin to ever thank them all enough for their tireless efforts,” Henderson went on to say.
An analyst asked about who might take Williams’ position as chief financial officer and whether it will be a candidate from within the company or if Car-Mart might choose someone from outside its current executive ranks.
“We are in the process, and we’ll have some news for you guys just as soon as we can,” Williams said.
In the current issue of BHPH Report, we discussed what we classified as the “eight risk questions that might keep you up at night.” We spelled out each of those questions here.
Well, now let’s try to provide you some answers to those difficult questions so you can rest better. Let’s begin with how can we better identify risk as a buy-here, pay-here dealership?
Every approval model has, as a way of disclaimer, an accuracy percentage attached to it. The likelihood of someone going bad is known before approval, depending on which segment of the approval model they belong. If one decides to dip into the fifth decile of an approval model, which has 35 percent bad rate, versus only the second decile, which has only 10 percent expected bads, they will have also done the profiling to differentiate the bads in the fifth decile.
Therefore, if operators accept them into their books, the dealerships also have to be ready to manage them so that they can act as soon as the account starts to show signs of future misbehavior. This is a passive strategy.
An active strategy goes even further as to “shape” or train the right behaviors of those likely to be bad. Usually, this is the perfect hand off of the accounts from the approval model to the portfolio management models.
Once approved, knowing which accounts under management would most likely go “bad” is critical to managing the good. Early detection warrants immediate action.
What an advantage it would be to stand at the door of credit approval as hundreds of new accounts are scored and on-boarded.
As an account passes through various phases such as approval, activation and management, some go delinquent while others continue to repo or charge-off. From simply an origination score perspective, approvals have a known risk factor. Many origination scores predict the percentage of loss associated with a specific approval score band.
What we see however is fewer and fewer operators are assessing continued correlation between score bands and loss rates. Additionally, we also have to be prepared to ratchet up intensity levels of a work treatment strategy as accounts age based on its risk score.
Not only will we be able to assess portfolio quality this way but also a much more strategic approach to capacity and staffing.
Early risk modeling and performance scoring was a function of past historical payment experience, with some help from credit reporting data. Typically good data for new account approval but what we are talking to here is:
—Analyzing projected risk
—Strategy
—Course adjustments based on risk stratification.
Clustering known elements of risk attributes to deploy pre-established workflow strategies is critical to diverting known high loss potential accounts into unique queues so that they are worked with more efficiency, tracked by results and ultimately provide retrospective feedback as part of the risk artificial intelligence models.
Greg Shelton is president at Partners Consulting, a management consulting firm specializing in operational assessments, workflow reviews and strategic planning for management teams in the accounts receivable management industry. Maria Singson is president and chief executive officer of twoMS.co, which offers risk and marketing analytics to help companies target profitable segments mitigate risks. Shelton can be reached at (678) 575-1136 or gshelton@partnersconsultingllc.com. Singson can be reached at MariaSingson@twoMS.com or (908) 499-4037.
The industry just moved past Fourth of July, but the National Alliance of Buy-Here, Pay-Here Dealers (NABD) is already looking toward late October when the organization hosts its next BHPH Conference.
The 14th annual conference — which has the theme Opportunity Knocks – Best Ways to Respond — is set to begin on Oct. 23 at the Rosen Centre in Orlando, Fla.
NABD president and founder Ken Shilson said, “The last 24 months have been extremely challenging for BHPH operators, but better days are ahead.”
Shilson acknowledged that increased competition, plus higher operating and compliance costs, have combined to reduce profits and BHPH market share. However, he added that competition is declining and former BHPH customers will re-enter the finance market when they default on vehicles they bought from the competition.
This conference will address ways to regain market share, find capital, avoid compliance mistakes and reconnect with the best customers, as well as underwriting and collection best practices that work in the current environment.
The program begins on Oct. 23 with a first-timer reception at 1 p.m. and ends at noon on Oct. 25 to facilitate return travel. Featured speakers are set include:
—Richard Flint
—Steve Siebold
—DJ Harrington
—Ingram Walters
Shilson mentioned that more experts who will provide important tips and insights to help attendees succeed are being added to the conference program.
“Their messages will benefit attendees long after the conference ends,” said Shilson, who noted that NABD will post an agenda online at www.bhphinfo.com. More details also are available by calling (832) 767-4759.
The conference will feature an exhibit hall to facilitate networking between experts and attendees. Anyone interested in exhibiting should call (832) 767-4759, as exhibit sales are currently under way and exhibitor space is limited.
Rosen Centre is conveniently located just minutes from Orlando’s airport and was recently voted one of the 75 best meeting hotels in America. Recently renovated, it offers the ideal facilities for this conference.
NABD has negotiated discounted room rates of $179 per night, with no resort fees, to make it affordable for everyone. Conference registration discounts are also available for attendees who make their room reservations and register for the conference before Sept. 22.
Visit www.bhphinfo.com or call (832) 767-4759 to register or for more information.
It’s not news that independent and buy-here, pay-here dealers more often will complete vehicle deliveries with consumers with softer credit than their franchised store contemporaries.
What is noteworthy is how Experian Automotive detailed the extra risk being facilitated through franchised dealerships to complete financing when looking at the lowest credit tier tracked on a quarterly basis.
According to Experian’s State of the Automotive Finance Market Report, the average amount financed during the first quarter for deep subprime customers — individuals with credit scores between 300 and 500 — making purchases at independent dealerships jumped by $654 year-over-year to $13,707.
And the term of the contract for those purchases grew by more than a month to nearly 55 months.
Breaking the independent store data even further, the average monthly payments for deep subprime customers who bought a vehicle in Q1 ticked up by $12 to $385.
When it comes to annual percentage rate on the contracts, the average APR for deep subprime buyers ticked up just 2 basis points during the first quarter to 20.55 percent.
Now let’s compare those figures to what happened at franchised dealerships that sold a used vehicle to a deep subprime customer during the first quarter.
Perhaps reflecting the network of finance companies franchised dealers can tap to get a deal with a deep subprime customer “bought,” the average amount financed for buyers in Experian’s lowest credit tier for used-vehicle transactions at new-car stores reached $16,151, up by $336 year-over-year.
Those finance providers working with franchised dealerships who will move metal with deep subprime customers also were willing to stretch terms much longer than contracts finalized at independent stores. The average term for a deep subprime buyer who took delivery of a used vehicle at a franchised dealership in Q1 came in at almost 66 months, nearly a year longer than what was booked on average at the independent lot.
And when it comes to rate and monthly payment, those deep subprime customers also finalized a little better deal on that used vehicle as the Q1 average APR dropped 9 basis points year-over-year to 18.37 percent with the monthly payment coming in $381.
J.D. Byrider announced a major change in leadership on Tuesday as the franchise network of buy-here, pay-here dealerships recently appointed Craig Peters as chief executive officer, replacing Steve Wedding, who served the company for 25 years.
The company indicated Wedding will support the transition as an advisor to the J.D. Byrider board of directors.
Most recently serving as chief operations and technology officer of Barclaycard US, a top-10 U.S. card issuer and division of Barclays, Peters was responsible for delivering a new technology platform to support the launch of a new consumer lending business while driving efficiencies and improving quality at the company.
Peters brings more than 20 years of leadership experience in consumer finance to J.D. Byrider with a broad base of global experience across operations, collections, risk management and technology. He has successfully transformed many businesses and operations during his tenure at HSBC, Capital One and Barclays.
“We are thrilled to bring someone with Craig’s experience and track record to J.D. Byrider,” J.D. Byrider executive chairman Aaron Tankersley said.
“Craig’s leadership will be instrumental in the continued development of new services and systems for our current franchisees, as well as the successful growth of additional company-owned and franchised locations,” Tankersley went on to say.
Stemming from some of the feedback organizers shared, the National Alliance of Buy-Here, Pay-Here Dealers completed its mission during the 19th annual National BHPH Conference last month in Las Vegas.
John Baughman of Lake Erie Auto Credit said, “I wanted to come away with at least one idea that would help our business. I got that times 10.”
Operators and experts from around the country as well as from international locations gathered to hear more than 65 speakers and panelists discuss “changes in the subprime auto finance market.”
The educational sessions featured 12 different workshops covering:
—Current industry developments
—Accounting/tax update
—Managing reconditioning costs
—Reducing losses and keeping customers paying
—Maximizing tax refunds
—Using the web and social media to gain market share
—Payment devices
—Integrated technology solutions
—DMS technology
—Capital
—Inventory acquisition and financing.
All these sessions were interactive, so attendees could ask questions and get answers to all these important topics.
“Attendees indicated that the information covered in the workshops was invaluable,” conference chairman Ken Shilson said. “Networking between attendees and experts and their desire to seek out new products and services made the exhibitor sessions exceptional this year.”
Danny Strickland of Young’s Auto Center emphasized Shilson’s point, adding, “Great sessions. Great to meet and learn from another dealer, having questions answered.”
JE Everett of the Ray Skillman Auto Group echoed the sentiment, saying, “NABD consistently does things for our group. Reinforces what we are doing right/well. Reminds us what we need to remember. Ken gives us updates on legal issues.”
NABD also hosted a reception for more than 200 first-time conference attendees. One was Bentley Nolan.
“As a first timer, I found the conference to be very engaging. The broadness of topics covered was exceptional,” Nolan said.
For operators who missed the Las Vegas event, NABD indicated conference presentations have been posted on its website at www.bhphinfo.com for downloading free of charge. NABD’s new benchmarks and trends information is available at www.subanalytics.com.
NABD announced that its next event will be a BHPH Conference in Orlando, Fla., at the Rosen Centre Hotel on Oct. 23-25. This facility is one of the 75 best meeting hotels in America, and NABD has arranged discounted room rates with no resort fees while supplies last. For more information, or to register for this upcoming conference, visit www.bhphinfo.com or call NABD headquarters at (832) 767-4759 while space is available.
And attendees highly recommend going to conferences orchestrated by NABD.
“It’s a great opportunity to get away from, yet focus, on your business,” said Mike Held of Koehne Car Credit.
And Greg Nippert of Freeland Chevrolet added, “New or old to BHPH, if you’re not attending or sending a key employee, you’re making a huge mistake.”
SecureClose, a digital transaction management platform that can help dealers bring consistency to the F&I office through compliant e-closings, recently announced its integration with Auto Master Systems, a dealer management system (DMS) serving 500 buy-here, pay-here dealers and independent finance companies across the United States and Canada.
Instead of printing hard copies of deal documents to their printer, users can simply press a “Send to SecureClose” button, after which the files will be processed for electronic disclosure.
SecureClose can ensure every buyer receives the same compliant, easy-to-understand disclosures. An automated avatar (or “digital assistant”) explains the paperwork in either English or Spanish, and closings are video recorded. Closing records are securely stored in the cloud, along with the deal package.
“SecureClose removes the element of human error and he-said-she-said disputes, so it’s like having a lawyer close every deal – and having the digital recording to prove it,” said Ace Christian, founder and chief executive officer of SecureClose. “We are proud to add Auto Master Systems to our growing list of integrated DMS providers.
“We’re especially looking forward to bringing fully electronic, fully compliant closings to hundreds of new buy-here-pay-here dealers and independent finance companies across the country,” Christian continued.
Mike Downey, vice president of sales & marketing at Auto Master Systems, shared his thoughts on why the company chose SecureClose for its next integration.
“Security of customer data is paramount for our clients, and SecureClose ensures safe cloud storage of the entire closing record and deal package,” Downey said. “In addition to strengthening dealers’ F&I compliance, SecureClose removes the hassles of training and re-training employees to close deals. It’s no secret dealerships tend to have higher turnover, so this aspect of training alone can be a huge expense that SecureClose wipes out.”
Downey added that dealers and finance companies will also benefit from far fewer uneducated closings, in which a customer signs the paperwork without reading or understanding what they are agreeing to.
“SecureClose ensures the consumer receives clear explanations of each disclosure, and they can rewind and replay sections they want to hear again. The bottom line is, a more educated borrower is a better-paying borrower,” Downey said.
Both SecureClose and Auto Master Systems are set to exhibit when the National Alliance of Buy-Here, Pay-Here Dealers hosts its 19th annual conference at Wynn/Encore in Las Vegas on May 23 to 25.
For more details, visit www.bhphinfo.com or call (832) 767-4759.
