Western Funding Tools Now Available in DealerCenter


Western Funding is now active on DealerCenter. Executives highlighted this integration makes Western Funding’s financial products more accessible to dealerships by offering instant approvals and the ability to change the structure of the deals to meet customers’ needs. 

“We're excited to partner with DealerCenter to offer 24/7 instant approvals,” Western Funding president Guerin Senter said. “By offering automated decisioning, we’re more efficiently serving our dealership partners.  Now we can automatically return an approval with an aggressive deal structure and allow the dealer to adjust it for more profit; this is a huge step toward our goal of serving more dealers.”

Western Funding provides finance options for independent and franchised dealerships across all 50 states.  The company’s loan programs are geared toward the subprime borrower unable to access traditional lending credit because of the age of the vehicle being financed or the customer's employment and credit history.

“We’re confident that Western Funding will see an increase of business by using our platform,” DealerCenter vice president of sales Jesse Martin said.  “We’re look forward to growing Western Funding’s business with our innovative technology, as well as offering our customers more financial resources.”

DealerCenter is a Web-based dealer management system catering to independent dealerships. The company provides technology to more than 10,000 dealers nationwide and strives to make the "definitive place" on the Internet for the dealer.

“Having recognized the changes in the market, we have integrated with DealerCenter to better serve our dealership partners,” Senter said.

"Even with the improved technology, we haven't forgotten our roots and are heavily supportive of the personal touch,” Senter continued. “We have an entirely dedicated team of credit analysts to support and review the decisions and ensure they work with the dealer. We also pride ourselves in fast funding. When we receive a complete package, we guarantee funding within one day but usually fund the same day.”

In addition to Western Funding’s loan programs, the company also offers bulk portfolio purchases of various sizes.  Western Funding purchases accounts receivables from buy-here, pay-here dealerships, “allowing them to focus more time on selling cars rather than collections,” according to executives.

Q2 Subprime Volume Drops by Double Digits for Both Used & New


Finance companies’ appetite for subprime risk appears to be waning, judging by the softening trends Experian Automotive shared on Wednesday.

According to its latest State of the Automotive Finance Market report, Experian determined that the percentage of new-vehicle loans to subprime and deep subprime borrowers began to level off in the second quarter.

The percentage of new-vehicle loans going to consumers in the subprime and deep subprime segments was at 15.1 percent in Q2, down from 22.1 percent a year earlier. While analysts pointed out the latest reading is higher than the low at the worst juncture of the recession in 2009 when it was at 10.2 percent, they also said the current figures are still well below the prerecession level highs of 16.6 percent in Q2 of 2008 and 19.9 percent in Q2 of 2007.

The subprime softening also is apparent on the used-vehicle side, too.

Experian indicated the percentage of used-vehicle loans extended to the subprime and deep subprime segments in the quarter settled at 40.2 percent, down from 50.6 percent in Q2 of last year. Again, the figures are up slightly from the 39 percent seen in Q2 2009, but still below the prerecession levels in 2008 and 2007 of 43.4 percent and 46.6 percent, respectively.

Melinda Zabritski, senior director of automotive finance for Experian, examined the figures and shared her thoughts, just like she will do during the opening keynote presentation at the SubPrime Forum, which runs from Nov. 10 through 12 as a part of Used Car Week at the Red Rock Casino, Resort and Spa in Las Vegas.

“Although we’ve seen relative stability in the automotive industry the past several years, lenders are still showing cautionary signs when lending to the subprime market and keeping their risk at manageable levels,” Zabritski said.

“As for consumers, as long as those in these higher risk segments continue to pay their bills on time, keep delinquent balances in check and select a vehicle that fits within their budget, they should still be able to obtain the necessary financing to purchase a vehicle that meets their needs,” she continued.

As subprime volume softened year-over-year, Experian also noticed the amount that borrowers with bruised credit histories also dipped in the second quarter.

The average new-vehicle loan amount to a subprime borrower dropped to $27,347 in Q2 2014 from $27,563 in Q2 of last year, and new loans to deep subprime borrowers fell to $24,836 in Q2 from $25,486 in Q2 a year earlier.

For used vehicles, the average subprime borrower loan fell to $16,546 in Q2 from $17,020 in Q2 of 2013. Used deep subprime loans fell to $14,358 in Q2 from $15,113 in the year-ago quarter.

While those contract amounts are on the way down, Experian also pointed out the average monthly payment for a used vehicle reached an all-time high in the second quarter. That monthly commitment for a used vehicle came in at $355 in Q2, up $4 from a year ago.

“Used-vehicle financing has experienced consistent growth over the last several years,” Zabritski said.

“As we continue to see the price of vehicles reach new heights, more and more consumers, especially those that are credit challenged, are turning to the used vehicle market as a viable option to purchase their next car,” she went on say.

While not a record, Experian also noted that the average monthly payment for a new vehicle increased, too. The second-quarter average moved up by $10 to $467/

Experian also highlighted several other trends from the its Q2 data, including

• Of all new vehicles sold in Q2 2014, leases accounted for a record high 25.6 percent, up from 23.4 percent the previous year.

• The interest rate for a new vehicle was up from 4.46 percent in Q2 of 2013 to 4.59 percent in Q2 of 2014.

• Used vehicle interest rates were up from 8.56 percent in Q2 of 2013 to 8.82 percent in Q2 of 2014.

• The average credit score for a new vehicle loan in Q2 of 2014 was 711, up from 699 a year earlier.

• The average credit score for a new vehicle lease rose to 717 in Q2 of 2014 from 706 in Q2 of 2013.

Webb Explains Why Auto Loan Application Info Differs From Overall Debt Trends


Manheim chief economist Tom Webb regularly tries to take questions connected to current events when he closes his monthly Auto Industry Brief. The August edition contained questions that likely came from a busy F&I manager.

The questioner arrived at the query after reading that household debt levels shrank in the second quarter.

“That’s not the sense I get from reviewing our customer credit apps, nor is it consistent with the large amount of new paper we are sending to lenders every month,” the individual told Webb. “What gives?”

Webb began his response by acknowledging total outstanding debt (mortgages, home equity loans, student loans, auto loans and credit cards) did, in fact, decline by $18 billion in the second quarter, according to Federal Reserve information.

But it was a tale of two cities — mortgage lending fell to a 14-year low, while auto lending hit an eight-year high,” Webb said.

In light of those figures, Webb tried to give more perspective beyond the broad figures.

“All in all, the state of household finances is solid. Lower debt levels, low interest rates and modest income growth have pushed debt servicing costs down to levels not seen in over 30 years,” Webb said.

“Nevertheless, there is still a very broad swath of the country that lives paycheck to paycheck and where debt servicing costs eat up the majority of income,” he continued. “Those stories are always lost in the aggregate averages.”

With this F&I manager evidently busy with applications, the situation reinforced Webb’s position about how the availability of vehicle financing is one of the facts supporting the sustained rebound of auto sales — both new and used.

“There is no way to overstate the important role that favorable retail financing conditions have played in supporting used-vehicle sales and residual values throughout this recovery,” Webb said. “And, unlike times in the past when aggressive new vehicle financing hurt used-vehicle residuals by switching customers from a used purchase to a new one, this time the financing deals are being used to support higher average new-vehicle transaction prices.

“In addition, today, the great financing deals are also available for used vehicle purchasers,” he added.

After taking his turn refuting this summer’s much-discussed New York Times series that attempted to convey a subprime auto finance bubble inflating, Webb did describe what he called the “fantasy” portion of vehicle financing. He pointed out current conditions of financing availability likely won’t continue into perpetuity.

Webb insisted it is fantasy “to assume that retail credit conditions will continue to get better, loans will get longer, and that there will be no downside.

“When rates rise — and they will — the market’s all-consuming ‘search for yield’ will abate,” he continued. “And, when that happens, lenders will no longer be awash with funds and, thus, will become more restrained. It is also fantasy to assume that the lengthening of loans that has already occurred is not a negative.

“In addition to increasing the severity of loss on the few repos that do occur, extended terms can also negatively impact customer satisfaction when owners find it difficult to trade out of their ride when they want,” Webb went on to say.

Equifax Pops Subprime Bubble Talk in New White Paper


As CNW Research noticed both sequential and year-over-year increases in approvals for subprime vehicle financing so far this month, two Equifax economists took their turn to again reiterate how a bubble is not forming in that segment, contrary to the connection some observers are making to the mortgage meltdown.

In a white paper released on Monday, Equifax explained the three critical components to the bubble formation in the mortgage space going into the recession. Those elements included:

— Rising asset prices (home prices) fueled speculation in residential real estate.

— New-home construction was at all-time high for a sustained period and exceeded population growth.

— The share of mortgages originated to subprime credit borrowers was rising at a time when home purchases were at record levels.

Equifax chief economist Amy Crews Cutts and deputy chief economist Dennis Carlson pointed out in the white paper that as the number of borrowers who were well-qualified to finance a home purchase did not rise in tandem, the credit bubble was fueled by inappropriate lending, which in turn fed the asset bubble.

“While there are always key differences in the housing market compared to the auto market, including housing as a potentially appreciating asset versus an auto that is likely a depreciating asset, the Equifax expert acknowledged there are some similarities in factors that indicate some “effervescence” such as quickly rising sales of new vehicle and an even faster rate of increase in auto lending.

“But looking closely at those similar factors, we see that the auto market of today is just now recovering to pre-recession levels and, unlike the mortgage market immediately prior to the recession, the auto market was not in the same frenzied state at that time,” said Crews Cutts and Carlson, who noted that new-vehicle sales reached their peak level in the first quarter of 2000 and averaged 16.96 million units for the six-year period ending December 2005.

Crews Cutts and Carlson began their white paper titled, “Not Yesterday’s Subprime Auto Loan,” by reiterating the importance subprime financing is to the future of consumers who have damaged credit profiles. The Equifax economists noted the positive consumer ramifications well known to finance company executives at institutions that specialize in subprime contracts such as the importance of quality transportation to enhance employment opportunities and how steady payment performance can possibly lead to a rise toward prime status.

“If a borrower with subprime credit obtains a loan from a financial institution that reports the complete payment histories of their clients to the national credit reporting agencies, and that borrower makes timely payments on that loan and other credit obligations, then over time that borrower’s credit score will likely improve, possibly enough to qualify for prime credit terms,” Crews Cutts and Carlson said.

“If, however, the subprime-score borrowers are precluded from mainstream sources of credit, it becomes more difficult for those borrowers to improve their credit scores,” they continued. “Auto financing in the subprime segment adds to the benefits by enabling credit-worthy consumers to obtain reliable transportation and acquire a valuable, albeit depreciating, asset.”

Adding to the importance and value of subprime auto financing, Crews Cutts and Carlson emphasized that the lending landscape today is not the same as it was in 2007 when experts contend the economy ran into its worst tailspin since the Great Depression.

“Lending in the heyday of the credit boom often greatly underweighted any consideration of credit worthiness outside of a credit score. However, credit scores are predicated on lending underwriting standards being maintained as they were during the reference period used to create them — that is, they explicitly assume that lenders will verify the collateral, capital, and capacity of borrowers just as they always have,” the Equifax economists said.

“Lending has returned to the ‘good old days,’ both because lenders generally have a reduced appetite for risk and because regulatory scrutiny has increased,” they continued. “Specifically, in the subprime auto lending segment most lenders are now verifying incomes today on all loans.

“Given this, loans originated with a 620 credit score today are likely to perform very differently from loans originated with a 620 credit score in 2007, when the loans were likely granted without full underwriting,” Crews Cutts and Carlson went on to say.

And CNW’s data showed the modest increases the industry is currently generating. According to the firm’s August issue of its Retail Automotive Summary, subprime contract approvals are up 5.18 percent in August compared to July and 9.91 percent higher versus the same month last year.

Equifax closed its white paper by pointing out that subprime vehicle financing needs to be monitored carefully, especially given the risk finance companies take providing loans to borrowers in the subprime space.

“The evidence does not support that there is a bubble forming in the auto lending space,” Crews Cutts and Carlson said “It is also beneficial to consider than an unmet need is being satisfied.

“Assuming originations and loan performance in the space remain as they are today, this may benefit the overall economy, as well as the individual participants, in the long run,” they added.

The complete white paper from Equifax is available here.


Westlake Financial’s Receivables Hit $2 Billion


Sparked by the best July in company history, Westlake Financial Services announced this week that it reached $2 billion in total receivables.

Westlake’s portfolio now has that total receivables figure connected to more than 270,000 customer accounts.

“Having a portfolio of $2 billion is a huge accomplishment,” said Don Hankey, chairman of Westlake Financial Holdings. “It is a reflection of all the hard work of our dedicated employees as we continue to strive to grow every year and provide products that allows our dealer partners to help finance all customers.”

This latest milestone continues the growth the company has experienced through the latest recession. Westlake’s portfolio reached $450 million in 2009 and then $1 billion two years later.

As keys to success, Westlake Financial Holdings group president Ian Anderson highlighted the company’s flexible products, diverse services, technology, financial partners, lasting relationships with independent dealers and expanding service into the franchise market.

“We continue to focus on providing robust and flexible financial products for our customers, and that continues to help us in the market,” said Anderson, who is part of the stable of industry leaders who are part of the SubPrime Forum, the financing piece of Used Car Week.

“In 2009, we were a $450 million company, and now we are five times that size because of our employees and our dealer partners,” he continued.

Westlake Financial Services continues to focus on building dealer relationships in all 50 states. Westlake partners with Nowcom to provide automated full spectrum financial products and dealer management systems through DealerCenter.

“Our growth is made possible because of our strong relationships with banking partners such as Wells Fargo, JP Morgan, RBS, CSFB and Bank of America, to name a few,” Anderson said. “The backing of the Hankey Group, Marubeni and our relationships with business partners allows the companies of Westlake Financial Holdings to help dealers or returning Westlake customers in the market.”

Westlake Financial Services is a full spectrum finance company offering rates as low as 1.65 percent. Westlake serves all 50 states and offers solutions for all FICO scores.

“Westlake is in a unique place in the market where we can offer financial solutions for any dealership across the United States,” said Mark Vazquez, senior vice president of sales and marketing for Westlake Financial Services.

“We offer a full spectrum of products for a full spectrum of dealers brought by 300-plus dealer account managers motivated to help dealers sell more cars and make more money,” Vazquez went on to say.

Discussions about how companies such as Westlake Financial Services are growing are among the many topics on tap for the SubPrime Forum, which is set for Nov. 11 and Nov. 12 at the Red Rock Casino, Resort and Spa. The event orchestrated in collaboration with the National Automotive Finance Association is designed to foster dialogue about the competitive and regulatory environments as well as other elements critical to the subprime segment of the industry.

Details about the event’s agenda, registration and more can be found at

New Moody’s Report, Execs’ Outlook Confirm Usual Subprime Cycle


Near-term predictions made this week by Moody's Investors Service fall in line with ongoing lending cycle points noticed by veteran finance company executives such as Credit Acceptance’s Brett Roberts and Brad Bradley of Consumer Portfolio Services.

Moody’s analysts indicated in a new report that they do not expect losses of U.S. subprime auto loans to reach crisis levels. The firm acknowledged delinquencies have risen over the last few years, but they remain below the levels at the height of the financial crisis and have started to moderate.

Moody's senior vice president Mack Caldwell elaborated about that stance in the report, titled, “U.S. Subprime Auto Loan Delinquencies, Still Below Post-Crisis Highs, Reflect Typical Credit Expansion.”

Caldwell said, “Subprime auto lenders have already started to rein in lending to weaker credit-quality borrowers. Barring an imprudent expansion in lending to subprime borrowers, delinquencies will not increase to crisis levels.”

During their most recent quarterly conference calls, both Roberts and Bradley talked about the industry cycles both have seen in the subprime financing space. The finance company leaders each told Wall Street observers that their underwriting practices haven’t loosened in an attempt to chase volume — practices sometimes leveraged by other well-established institutions as well as start-up operations.

Bradley explained this is the third cycle of ups and downs in the subprime space since he’s been associated with CPS. Bradley also referenced what he called the second cycle — the span going into the last recession that he believes was “dominated by large banks.”

The CPS chairman, president and chief executive officer said, “Those large banks were able to compete very aggressively on price, caused a lot of independent players to really work hard and cut price and maybe buy more aggressively. All of those companies did just fine. We all went through it. I don't think anyone really particularly went out of business for credit reasons. A couple of people went out of business because they ran out of funding. That's a very distinct difference.”

Bradley went on to mention how much better finance company leadership is now as compared to lending cycles past.

“Almost all of the companies today are being run by people who have been in the industry for 25 years, as opposed to the first cycle where a bunch of the companies were run by people who had been in the industry for 5 minutes,” Bradley said.

“And so as much as you will have a few companies that don't do it particularly right, and a few of them fall on their face for a variety of different reasons, by and large the industry as a whole should do just fine,” he continued. “It’s run by better people. You’re going to have a few fall out, much like in the first cycle. But in terms of seeing this industry fall apart in any grand scale, it’s sort of hard to figure out why people would think that. It's run by more seasoned executives. There is no pricing pressure from banks.

“And in fact, we are sitting in one of the most favorable environments we possibly could be in,” Bradley went on to say.

In this week’s report, Moody’s emphasized the increase in financing to subprime customers marks the return to a typical consumer lending cycle. In recent months, Moody's contends that banks and other non-traditional finance companies have started to pull back from lending to subprime borrowers, which has eased pressure on the smaller finance companies that traditionally finance subprime auto loans.

With less competitive pressure, Caldwell insisted finance companies can target higher-credit-quality borrowers.

“Lenders have become more cautious, as evidenced by the rising credit scores of borrowers buying used vehicles," Caldwell said. “Subprime interest rates are also rising, a sign that lenders have a lower risk appetite.”

That slackening appetite is part of the typical cycle Roberts stressed to the investment community that he’s seen, as well. The Credit Acceptance CEO was asked to elaborate how contracts the competition might be adding to its portfolio might be influencing his company’s bottom line.

“The returns that we try to make, our target returns are quite a bit higher than the target returns of a lot of the companies we compete with,” Roberts said. “If everything goes according to plan, the profit per deal that we shoot to achieve is typically quite a bit higher in terms of returns. You can look at the other public companies that are out there that are auto finance companies, and compute their returns, and you can corroborate what I'm saying.

“But then usually there's a part of the cycle where things don't go according to plan,” he continued. “And because we have a nice margin of safety built into our business model, we typically do OK during those periods. There are other companies that operate with razor thin margins that don't do as well. We would expect it to play out the same way this time.”

Moody’s pointed out that delinquencies have risen with each full origination year since 2010. Analysts insisted the economic recovery and pent-up demand for vehicles spurred lenders to increase their loan volumes by extending credit to weaker borrowers.

Moody's vice president and senior analyst Peter McNally, a co-author of the report, also mentioned competition among finance companies increased to accommodate the pent-up demand, causing institutions to loosen underwriting standards.

“The potential for profits from subprime lending attracted banks, credit unions and captive finance companies, which typically do not focus heavily on subprime borrowers,” McNally said. “The average credit score on both used- and new-vehicle loans had declined and loan terms had lengthened, increasing the period in which a borrower could default.”

Moody's closed its report by noting analysts continue to be concerned over the long term about the operational risk in asset-backed securitizations backed by subprime auto loans from smaller lenders, which the firm’s ratings reflect.

“Increasing origination levels for small, niche players strain their ability to manage loan and transaction cash flows if they do not also increase servicing capacity, which can ultimately lead to higher losses,” McNally said.

“Higher loan losses can cause a financially strapped lender to lose investor confidence and funding, increasing the securitization’s losses if the servicer fails and a servicing transfer disrupts collections and loss remediation efforts,” he added.

Black Book Examines Impact Recalls Have on Portfolios


In light of more than 37 million vehicles being recalled so far this year, the team at Black Book Lender Solutions went to work considering the impact these campaigns are having on the auto finance industry.

Analysts acknowledged the psychology of a vehicle recall — particularly one garnering national headlines — has the propensity to keep finance companies from expanding their portfolios with the vehicle in question.

However, historical collateral data trends have shown that recalls typically do not adversely impact normal retention patterns of a vehicle, immediately after the recall is initiated as well as into the future. Black Book arrived at that assertion in a white paper the company released on Tuesday.

“Lenders typically look at depreciated value somewhere in the neighborhood of about 24 months out to really determine if that vehicle either represents a profitable candidate for their portfolio,” said Jared Kalfus, who is the vice president of data licensing at Black Book Lender Solutions, which will be sponsoring the Auto Finance Executive of the Year Award again this year the SubPrime Forum.

“Collateral data is a key element in identifying these trends for lenders and can help detect particular vehicles that offer opportunities for increased risk,” Kalfus continued. “Historical, current and forecasted vehicle value data offers the right amount of insight for loan originations, loan-to-value levels and where to be more aggressive within the portfolio.”

Kalfus indicated any negative impact to vehicle retention immediately following a recall — or even several months later — can affect a finance company’s ability to identify certain vehicles that represent an opportunity for profitable portfolio expansion.

In the white paper, Black Book examined four different examples of vehicle recalls and equipment replacements that have made headlines dating back to 2000. Each example offered collateral data trends that showed the recalls themselves did not offer a negative impact to typical vehicle retention patterns.

Those instances included:

1. August 2000 Ford Explorer - Bridgestone-Firestone

2. December 2009 Toyota - Unintended Acceleration

3. November 2013 Ford Escape - Engine Issue

4. February 2014 General Motors - Ignition

When asked by SubPrime Auto Finance News about what triggered the research project, Black Book senior vice president and editorial director Ricky Beggs said, “It was a general overall conversation in the industry where people were worrying and wondering about what’s going on and if there’s been an adverse effect.

“Instead of just looking at what’s been going on with the recalls now — which has been from not just one or two manufacturers, but so many — we just looked back to find what was the trend back in the past with recalls and how has the market reacted,” he continued. “We just thought it was an interesting viewpoint to put out there in the industry since there’s been so many recalls out there in front of everyone’s mind right now.”

The complete white paper titled “Total Recall: Is There Additional Risk From Recalled Vehicles in Your Portfolio?” can be downloaded at

Moody’s Analyst Counters Thoughts of Auto Loan Bubble


Moody’s Analytics senior director Cristian deRitis chimed in this week, refuting the notion that rising auto lending volume is creating a bubble similar to the one that burst in the mortgage space and sent the U.S. economy into recession.

deRitis insisted that credit quality is better today than prior to the recession, or at any time since the American Bankers Association began tracking delinquency rates for auto loans in 1980.

“Borrowers of all credit profiles are taking out larger loans than they did in 2009,” deRitis wrote in a blog post on Moody’s website. “Improved consumer balance sheets and confidence offer one possible explanation. Consumers owe less now than they did during the recession, so they can afford to take on more debt. Another reason is supply: More lenders are more willing to provide credit than they were in 2009.”

The total amount outstanding in finance companies’ auto portfolios climbed above $900 billion earlier this year, according to Equifax. deRitis cited many other Equifax figures in his analysis, touching on the rise of contracts to subprime borrowers and acknowledging how that typically generates industry apprehension.

“The critics’ concerns notwithstanding, it is difficult to view the increased availability of credit as a negative,” deRitis said. “The steady availability of credit is a major reason for the auto industry’s growth over the past few years, while other sectors such as housing and retail sales have struggled.

“Nonetheless, if the Great Recession taught us anything, it is the danger of complacency,” he continued. “Just because consumers can afford to take on more debt does not mean they should. Today's record low delinquency rates can quickly accelerate.”

But again referencing Equifax data, deRitis pointed out payment performance has improved with each passing month since delinquency rates peaked in 2009.

“The fact that this is true across all stages of delinquency (30, 60, 90 and 120 days past due) is particularly encouraging,” he said.

The Moody’s analysts emphasized that instances of fraud and questionable financing practices that’s been highlighted in media reports this summer need to be addressed before they become systemic issues.

“Yet in some respects, auto lending is a victim of its own success,” deRitis said. “While auto credit contracted during the Great Recession, it was the first consumer credit sector to fully recover.

“Unlike private label mortgage-backed securities, the market for securities backed by auto loans did not collapse, continuing to function throughout the recession,” he continued. “Although significant, the losses suffered by auto finance companies and banks were tolerable and did not alter the shape of the financial system.”

deRitis reiterated the point made by dealers and finance companies to regulators — that access to reliable transportation is critical to securing and retaining employment to generate steady income.

“For some, the ability to purchase a vehicle meant the difference between keeping a job and unemployment,” deRitis said. “Tightening compliance and increased education are important to insure that borrowers are qualified and understand their loans, as is punishing unscrupulous dealers and lenders.

“But restricting credit too severely has its own consequences and will ultimately push consumers into the shadow banking system with little if any regulatory protection,” he continued.

“Without financing to support sales, the industry's recovery would have been far slower with more severe job losses,” deRitis went on to say. “The market may have overshot in the opposite direction recently, providing too liberally. But to borrow an automotive metaphor, it is easier to tap the brakes and correct imbalances than to try and move the industry out of a ditch with the parking brake of credit fully engaged.”

Credit Acceptance Receives CID from FTC


Credit Acceptance Corp. recently reported more than just its second-quarter performance. The company also received a civil investigative demand from the Federal Trade Commission.

As a part of its Q2 financial reporting to the Securities and Exchange Commission, Credit Acceptance said in its filing that the CID came from the FTC on June 6 relating to its various practices regarding consumers.

Credit Acceptance senior vice president and treasurer Doug Busk told investment analysts during a conference call that the company is cooperating with the inquiry.

“Relative to the contents of the civil investigative demand, it requested information on a number of topics: credit reporting, consumer privacy and information security, customer payments, marketing, training, customer communications, and consumer complaints,” Busk said.

“In terms of timing, really we don't have any insight there. We provide information, and the next step and the timing of the next step isn't known,” he continued.

The FTC’s request arrived as Credit Acceptance was in the closing weeks of a quarter when both its consolidated net income and adjusted net income increased year-over-year.

The company’s Q2 consolidated net income rose to $69.4 million, or $3.06 per diluted share compared to $61.5 million, or $2.56 per diluted share, in the year-ago quarter.

For the six-month span that ended June 30, Credit Acceptance generated $119.2 million, or $5.15 per diluted share, in consolidated net income, a total slightly lower than the same time frame in 2013 when the amount was $122.1 million, or $5.04 per diluted share.

Credit Acceptance’s second-quarter adjusted net income came in at $67.6 million, or $2.98 per diluted share, compared to $60.7 million, or $2.53 per diluted share, for the same period last year.

Through half of 2014, the company posted $131.0 million in adjusted net income, or $5.66 per diluted share. That’s higher than a year ago when Credit Acceptance had adjusted net income of $119.5 million, or $4.93 per diluted share.

Q2 Originations and Competition

Credit Acceptance’s string of double-digit growth year-over-year in loan unit volume and dollar volume stopped in the second quarter after reaching three quarters in a row. The company still posted unit- and dollar-volume jumps of 4.5 percent and 5.7 percent, respectively, during Q2 as its number of active dealers grew 10.6 percent.

The company originated 50,913 contracts in Q2 from a dealer base that consisted of 4,960 stores.

Credit Acceptance chief executive officer Brett Roberts acknowledged average volume per active dealer declined 5.5 percent year-over-year in Q2. Roberts attributed the decline in volume per dealer as the result of increased competition.

”It continues to be a difficult competitive environment,” Roberts said. “The growth rate in the second quarter did break the trend that we saw over the last three quarters. I don't know if the comparison is a little bit tougher this quarter. Last year's first quarter was pretty soft, so the first quarter of this year's growth number likely reflected that. The comparison was a little bit tougher. But it continues to be a very tough market, and the 4.5 percent growth that we had this time was certainly a break in the trend line.”

Analysts asked Roberts if Credit Acceptance is poised to return to year-over-year loan unit increases ranging from 11.0 percent to 14.3 percent as well as dollar volume rises climbing between 11.3 percent and 16.2 percent — the upward levels the company posted in the previous three quarters.

“It will get better at some point but it goes in cycles,” Roberts said. “It's probably likely to get worse before it gets better. That has been the history. It is difficult to know the exact timing, but we're in a period now where there's lots of capital and there’s lots of competition, and there’s certainly loans that are being written that we wouldn't want to write based on the economics of those loans, and so we just have to be patient until the tides turn, which they eventually will.” 

F&I Office Has Hand in Record High 77% of Sales


While advocacy groups and federal regulators continue to be skeptical of the convenience and value dealers present at the F&I office, new data from is showing the volume of work completed in that store department is climbing to levels never previously seen. determined only about 23 percent of buyers in July completed a purchase either with cash or financing arranged on their own as opposed to the remaining 77 percent that included some kind of indirect financing orchestrated at the dealership.

Analysts indicated last month’s trend is on track to be the lowest level ever, and down from about 35 percent just five years ago.

"You can't underestimate how important dealer financing has been to this automotive recovery,” senior analyst Jessica Caldwell said.

The latest auto loan figures back up Caldwell’s declaration. As previously reported here by SubPrime Auto Finance News, Equifax computed that the total outstanding auto loan balance as of June topped $900 billion for the first time.

“What’s great is we continue to see the momentum. Each month, we continue to see it grow and get stronger. It’s a really positive sign for the car market in general. Growing balances will continue to feed healthy growth for the next three to five years,” said Jennifer Reid, the senior director of product marketing at Equifax Automotive Services.

That growth expectation now and down the line isn’t just coming from prime borrowers, either. CNW Research pointed out that the number of subprime buyers in July rose by a “substantial” amount. CNW pinpointed the jump at 25.5 percent versus the same month a year ago.

And growth in deep subprime — borrowers with credit bureau scores below 550 — expanded by nearly the same rate in July, too. CNW indicated the amount of deep subprime borrowers climbed by 23.6 percent year-over-year.

Perhaps at least aiding in that growth — and aiding in profits for both the dealer and finance company — is the work being completed in the F&I office.

“When you think about more than three-quarters of people are at the dealership getting some sort of financial package, it just seems it’s totally changed from the mindset of a long time ago where you saved money and put down a big down payment,” Caldwell said.

“It seems like there are so many people who buy on monthly payment that the dealer works out for them, whether it’s a lease or financing,” she continued. “People just work within their budget saying, ‘OK, that monthly payment works for me.’ That’s why you see so much happen at the dealership rather people checking their own bank or credit union, thinking about how much they can afford before going into the dealership.

“I think (completing financing at the dealership) is a convenience factor, but I also think it’s also sometimes what drives the purchase decision. Some of these offers are so great whether it’s leasing or financing. It can really make or break the deal. Not only is it a matter of convenience, getting your transaction done all in one place, it’s also financially advantageous for people,” Caldwell went on to say.