NAF Association Highlights Agenda for Annual Conference

FORT WORTH, Texas - 

Along with giving executives another opportunity to complete the first module of its compliance certification program, the National Automotive Finance Association is rolling out one of its best lineups ever for its annual conference later this month.

The NAF Association acquired 25 percent more conference space to accommodate more programs, sessions and expansion of the exhibit hall for the 18th annual Non-Prime Auto Financing Conference, which begins on May 28 at the Omni Fort Worth Hotel in Fort Worth Texas.

“In keeping the primary focus on member needs, the 2014 annual conference will provide an excellent forum for education and networking for those within the non-prime auto finance sector. This highly regarded conference will cover the hot topics pertinent to the industry along with results from the newly formatted NAF Association Survey,” NAF Association executive director Jack Tracey said.

Among some of the conference agenda highlights:

—Consumer Financial Protection Bureau Q&A: This session is built on questions submitted in advance by NAF Association members. Members’ questions will be compiled, and Rick Hackett, partner with Hudson Cook  and former CFPB assistant director will pose the questions to CFPB executives Jeffrey Langer, assistant director, office of installment and liquidity lending markets, and Eric Reusch, office of installment and liquidity lending markets.

—Auto Industry Lending Through the Eyes of a Leading Industry Expert: Attendees of this session will hear observations on auto industry financing from leading industry professional, Sandy Schwartz, president of Manheim and the Auto Trader Group. His views will provide a perspective on how the cyclical swings in financing affect the auto industry at large.

—Subprime Forecast: Revving Up Your Approach to Auto Loan Portfolio Evaluation: Presented by Steve Chaouki, executive vice president of strategy and planning at TransUnion, this session cover how the sector has experienced significant growth since 2010, with strong demand pushing manufacturers to production capacity limits. One of the consequences of this dynamic has been the appreciation of used vehicle values, which in turn has led to a positive equity position on many auto loans. TransUnion’s study quantifies the impact of positive equity on the risk propensities of auto loans, controlling for a series of risk factors related to both the borrower and the loan collateral. Through analysis, Chaouki will show how the presence of positive equity leads to a meaningful reduction of credit risk under certain conditions, and how lenders can leverage this insight to optimize their portfolio management, collections and capital reserve policies.

— Asset Backed Securitization: An Update on Recent Developments and Trends: Presented by Amy Martin, senior director at Standard and Poors this session will focus on the current market trends in non-prime financing. This session will provide information on issuance volume and pricing spread; collateral and ratings performance and Standard and Poor’s outlook for the auto loan ABS market.

Before the conference begins, the NAF Association is repeating the opening segment of its compliance certification program due to strong demand. The association had an overflow crowd when it conducted the training back in January so Tracey decided to hold another session in Fort Worth this month.

The NAF Association offers an exceptional certification program including:

—35 hours in-classroom and online self-paced courses

—In-depth coverage of federal laws and regulations

—Thorough analysis of state laws and regulations

—Complete module devoted to CFPB

“A critical part of a compliance management system is staffing it with qualified compliance personnel. A company having their compliance officers certified through a comprehensive educational program is a clear demonstration of the importance the organization places on compliance,” Tracey said.

Certification participants will be eligible to attend the remaining sessions of the Non-Prime Auto Finance Conference for $195.

For complete details of the conference and the compliance certification program, visit www.nafassociation.com.

Outstanding Auto Balances Recover to 2005 Level


Remember 2005? That’s when the BlackBerry was the smartphone of choice, and the Federal Reserve pushed the short-term interest rate to 3 percent, marking the eighth increase in less than a year. That year also was the last time this much paper and metal was on the street.

The latest Equifax National Consumer Credit Trends Report showed the total balance of outstanding auto loans in March rose 10.3 percent from the same time a year ago to $874 billion.

Furthermore, the total number of loans outstanding is 6.1 percent higher year-over-year, as 63 million contracts are filling finance company portfolios.

Both metrics are at nine-year highs, which is “great news,” according to Jennifer Reid, the senior director of product marketing at Equifax Automotive Services.

“All in all, it’s very positive just to get back there,” Reid said during a phone interview with SubPrime Auto Finance News this week. “I joke because you talk to people who live month-to-month within the car business and you start to think, ‘Wow, it took us nine years to get back here.’ I hope we don’t forget that it took us nine years to get back.

“The big question now is have we learned from some of the things that got us to where we were five years ago? As long as we continue to keep these healthy trends of growth, we’re buying loans smart. Dealers are taking care of the customer, really focusing on that customer experience to build their businesses. I think it’s going to be a wave we’re going to continue to ride,” Reid continued.

Equifax’s data also showed the total number of vehicle loans originated in January came in at 1.8 million, an eight-year high and an increase of 4.7 percent year-over-year.

And with a greater volume of contracts associated with terms lasting 60 to 72 months, Reid suspects that the levels of outstanding contracts and balances likely will stay at current levels — or possibly rise.

“It speaks to the fact that money is being lent,” Reid said. “I think when you start to see those longer terms, traditionally you’re seeing customers get into a little more vehicle. The payments haven’t necessarily drastically dropped but some of the ticket prices have crept up. The good news is the vehicles from a technology standpoint are better than they ever have been.”

Meanwhile, Equifax is seeing delinquencies and write-offs drifting upward slightly but not at a significant rate. Reid pointed out how watching these trends also is considerably different than nine years ago when the amount of outstanding loans was this high.

“Lenders have more tools than they ever have had,” Reid said. “Just think about nine or 10 years ago and how far the Internet has come. That digital era is in the making right now. Now, I think the lenders can get more aggressive and still be smart about it. They have a lot more warning behind them. All the way around, we’re just more educated. I think we’re much more seasoned now having gone through the last five, six years.”

So when should an alarm sound, prompting a tightening of underwriting or a general pull-back in originations? Reid contends it varies on the strategy a finance company has.

“It really depends on your model. Too much for a prime lender might not be for a subprime lender who takes on quite a bit of risk,” Reid said. “I think right now the focus is — and it’s always a healthy discussion — what is the right level of risk. I think it’s more important to understand what risk you are taking. Because at a time when delinquency numbers start trending upward, it’s very tough to mitigate that. You can control the kind of paper you put on, but it’s really tough to control the paper you have. So you want to stay proactive and ahead of that. I think it’s OK to take on some extra risk, and we’re seeing that with some of the subprime paper, but lenders really need to make sure it fits their model.”

National Auto Acceptance Rolls out Program for Ohio Dealers


National Auto Acceptance Corp. recently announced a subprime/deep subprime point-of-sale program offered to independent and franchised dealerships throughout Ohio.

The company explained its program can help dealers capture customers with poor credit, past bankruptcies or repossessions, as well as and first-time buyers.

“The company does have plans to grow their footprint to other states, and these states will be announced later on in the year,” officials said.

NAAC has been in business for 25 years as the company was the captive finance company for the dealership chain BOBB Chevrolet/Suzuki in Ohio. The NAAC program is non-recourse.

“Many dealers will find that NAAC has friendly and reliable service along with fast funding suitable for their needs which will help them capture more potential sales,” officials said.

Any dealers interested in learning more about the NAAC program can send email inquiries to jeff.russell@naacauto.com or greg.ruckel@naacauto.com.

Credit Acceptance Discusses Competitive Impact on Q1 Results


Credit Acceptance chief executive officer Brett Roberts acknowledged just how much the competitive landscape finance companies are finding to book subprime contracts impacted the company’s first-quarter performance.

While the company’s consumer loan unit volume and active dealer figures both jumped by double digits year-over-year, Credit Acceptance reported that its consolidated net income softened in Q1.

The first-quarter consolidated net income level settled at $49.8 million, or $2.12 per diluted share, for the period that ended March 31. During the previous year’s quarter, Credit Acceptance’s consolidated net income came in at $60.6 million, or $2.48 per diluted share.   

Officials indicated first-quarter adjusted net income, a non-GAAP financial measure, totaled $63.4 million, or $2.69 per diluted share, which ended up higher compared to $58.8 million, or $2.41 per diluted share, for the same period in 2013.

Credit Acceptance reported that Q1 consumer loan unit volume rose 14.3 percent year-over-year to 65,283 contracts, up from 57,105 deals a year earlier.

The company’s active dealer network climbed by 16.1 percent to 5,058. At the close of the first quarter of last year, the network level stood at 4,355.

During this week’s conference call with investment analysts, Roberts summarized Credit Acceptance’s current situation in light of what he thinks might happen going forward.

“The competitive environment continues to be challenging,” he said. “We probably won't see a change there until the sources of capital dry up for the subprime auto finance industry. I think the best measure of the competitive environment is our volume and more specifically our loan volume per dealer and that continues to decline but it's declining at a slower rate which is allowing us to grow originations a little bit faster than we had in prior quarters.

“In terms of the spread, we haven’t made any material pricing changes since the third quarter of 2012, so any change you see in the spread is a result of probably a couple of things,” Roberts continued. One would just be a change in the mix of loans, and the second thing you have to be aware of is that historically, at least for the most recent periods, we have seen an increase in forecasted collections after the loans were originally booked so the actual performance of the loans has exceeded our expectations when we wrote the loans. So if that continues to be the case, the spread that we reported for 2014 originations would climb in future periods.

“That’s just something to keep an eye on as you’re comparing the more recent loans with more seasoned loans,” he went on to say.

Roberts also touched on where this industry competition is originating.

“Most of the competition is from the traditional discount model. The big players all use the traditional discount model. There are a few players out there that have a program that looks something like ours but most of the big players are your traditional discount lenders,” he said.

Beyond the industry competition Roberts discussed, Credit Acceptance also mentioned three other factors that resulted in its first-quarter decrease in economic profit.  Those negative impacts included:

• A decrease in its adjusted return on capital of 120 basis points primarily as a result of a decline in the yield on its loan portfolio due to higher advance rates on new consumer loan assignments.

• An increase in its cost of capital of 20 basis points primarily due to an increase in the average 30 year treasury rate, which is used in the average cost of equity calculation.

• An increase in adjusted average capital of 15.7 percent due to growth in our loan portfolio primarily as a result of growth in new consumer loan assignments in recent years, which resulted in the dollar volume of new consumer loan assignments exceeding the principal collected on our loan portfolio.  The growth in new consumer loan assignments in recent years was the result of an increase in active dealers, partially offset by a decline in volume per active dealer.

Wall Street observers also sought an update on how Credit Acceptance is handling regulatory issues, specifically in light of the Consumer Financial Protection Bureau connecting disparate impact to discrimination issues in the auto finance sector.

“With respect to that specific issue, obviously that is the No. 1 issue in the auto finance space as it relates to the CFPB,” Roberts said. “It’s got everyone’s attention and like everybody else we're working through those issues.

Charlie Pearce, who is our chief legal officer, is on the board of the industry association. He’s dialed into the latest updates, in terms of the CFPB’s position on that issue, so we’re working through that issue like everybody else,” Roberts went on to say.

Despite Dip, GM Financial Pleased With Subprime Penetration

FORT WORTH, Texas - 

General Motors Financial is not booking as much subprime paper for its parent automaker as it was a year ago, but company leadership isn’t alarmed by the modest decline experienced during the first quarter.

The lender’s share of subprime contracts associated with GM vehicles in Q1 came in at 31.8 percent. That figure is down from 36.3 percent a year earlier. GM Financial president and chief executive officer Dan Berce pointed out the company’s entire portfolio of subprime deals still ticked up slightly year-over-year to a market penetration level of 7.9 percent, slightly above what the industry average was in the first quarter (7.2. percent).

“In today’s low-rate interest environment we do see bank rates at the upper end of subprime being competitive with our subprime rates so that did account for some of our erosion in market share. Nevertheless, because GM’s subprime share is still at industry-leading levels we feel we’ve accomplished our mandate by creating a competitive product in subprime,” Berce said.

By accomplishing that mandate, GM Financial generated earnings of $145 million for the quarter, compared to $106 million for the same quarter a year ago.

The company grew consumer loan originations to $3.4 billion in Q1, up from $3.3 billion during the fourth quarter of 2013 and $1.4 billion in the year-ago period.

GM Financial’s outstanding balance of consumer finance receivables totaled $24.1 billion as of March 31.

“All of the sectors were strong. Our used-car origination volumes for both GM and non-GM dealers were higher than a year ago. The new GM vehicle originations slightly less, again for those reasons I talked about before with bank rates being quite competitive in subprime today,” Berce said.

“Competitive dynamics, a quick comment on that, they remain intense, but I would say that we did see the competitive conditions stabilize a bit in the quarter after intensifying really for the bulk of 2012 and 2013,” he continued. “We at GM Financial, though, have maintained credit and pricing discipline. We haven’t made any changes to our credit policy of any meaningful way in the subprime area.”

And since underwriting hasn’t changed much, GM Financial reported that consumer finance receivables 31-to-60 days delinquent stood at 3.1 percent of the portfolio as of the close of the first quarter, improving from 4.3 percent on March 31 of last year.

Accounts more than 60 days delinquent constituted 1.4 percent of the company’s portfolio on March 31, down slightly from 1.5 percent on the same date a year ago. Consumer finance receivables 31-to-60 and more than 60 days delinquent for North America were 5.0 percent and 1.8 percent, respectively, as of the first quarter.

Elsewhere in the performance area, GM Financial noted annualized net credit losses were 1.8 percent of average consumer finance receivables for the quarter, compared to 2.6 percent a year earlier. Annualized net credit losses for North America as a percent of average North America consumer finance receivables were 3.1 percent for the quarter.

“Just like originations, we did see seasonality as usual here,” Berce said.

Leasing Activity

GM Financial indicated operating lease originations of GM vehicles totaled $773 million, up from $650 million sequentially and from $620 million year-over-year.

The net amount of leased vehicles in GM Financial’s portfolio totaled $3.7 billion as of March 31.

“Lease originations, this is a bright spot for us,” Berce said. “We particularly had a good quarter in Canada this quarter originating a little more that $250 million of new leases. That was primarily because of outstandingly lease support from GM in Canada and our introduction of a biweekly pay option, which has been received by the market quite well.

“U.S. volumes were about flat year-over-year at $519 million compared to $535 million a year ago. Credit performance in this portfolio remains exceptional primarily due to the prime nature of this portfolio,” he went on to say.

Commercial Lending and Liquidity Update

The company’s outstanding balance of commercial finance receivables came in at $7.1 billion in the first quarter, up from $6.7 billion at the end of the fourth quarter and $883 million a year ago.

The outstanding balance of the North America commercial finance receivables on March 31 was $2.2 billion.

Commercial lending in North America, we continue to see steady progress albeit slow. We are up to 336 dealers now in the U.S. and Canada with outstandings of just short of $2.2 billion,” Berce said.

“We do believe that with the roll out of our prime product this summer that will help our progress here,” he continued. “Dealers continually tell us that they would like to have a single source for all of their needs whether it's commercial or consumer, loan or lease. And with prime we will for the first time have a complete product suite and therefore we think we will get more adoption of all of our product toward the end of 2014 and into 2015.”

The company had total available liquidity of $3.8 billion as of March 31, consisting of $1.2 billion of unrestricted cash, $1.4 billion of borrowing capacity on unpledged eligible assets, $583 million of borrowing capacity on unsecured lines of credit and $600 million of borrowing capacity on a line of credit from GM.

April Spending on New Models to be Highest Since 2005


This month’s projected new-vehicle sales activity is likely to push lenders’ portfolio total higher — along with elongated terms connected with those contracts.

J.D. Power estimated that consumers will spend $33.5 billion purchasing new vehicles this month, a historic record level for the month of April. The previous April high was $30.5 billion in 2005.

“The April 2014 consumer spending reflects a combination of record average transaction prices — which, at nearly $29,800, surpasses the previous April high of $28,754 in 2013 — and strong retail sales volume,” said John Humphrey, senior vice president of the global automotive practice at J.D. Power.

J.D. Power’s data shows changes in who is buying new vehicles and how they are paying for them.

Buyers 35 years of age and younger are expected to account for 25 percent of new-vehicle retail sales in April, marking a rebound to pre-recession levels.

Additionally, J.D. Power indicated nearly one-third of new vehicles sold in April will be financed with a loan of 72 months or longer, with younger buyers in particular using the longer term loans to manage their monthly payments.

“Among buyers who are 35-years old and younger, 44 percent opt for 72-month or longer loans, while only 25 percent of those who are 55 years and older use an extended loan term,” Humphrey said.

J.D. Power projected that retail light-vehicle sales in April are expected to come in at 1.1 million units, 5 percent higher than in April of last year.

The seasonally adjusted annualized selling rate (SAAR) is expected to be 13.3 million units, more than 700,000 units higher than a year ago, according to J.D. Power.

Meanwhile, Edmunds.com is anticipating a robust new-vehicle sales performance for April.

Edmunds.com predicted that that 1,401,606 new cars and trucks will be sold in the U.S. in April for an estimated SAAR of 16.2 million. The projected sales will be an 8.7 percent decrease from March, but a 9.1 percent increase from April of last year.

The site’s forecast anticipates that the auto industry will enjoy its best April performance since franchised dealers sold 1,444,587 vehicles in April 2006.

“April’s numbers suggest that car shoppers are still motivated to buy new cars, erasing any doubts raised by lackluster sales at the beginning of the year,” Edmunds.com senior analyst Jessica Caldwell said. “The sales performance the last two months is more in line with what we projected for 2014, and there’s every reason to believe that car shoppers will continue to keep this pace.”

14 Credit Unions to Participate in Non-Prime Loan Pilot

MADISON, Wis. - 

The National Credit Union Foundation, in partnership with Filene Research Institute, highlighted that 14 credit unions across the country are participating in a product incubator for non-prime auto loans.

The following credit unions will be testing the non-prime auto loan product:

—CALCOE FCU in Yakima, Wash.
—Cy-Fair FCU in Houston
—Denver Community CU in Denver
—EECU in Fort Worth, Texas
—Freedom First CU in Roanoke, Va.
—Laramie Plains Community FCU in Laramie, Wyo.
—Missoula FCU in Missoula, Mont.
—SchoolsFirst FCU in Santa Ana, Calif.
—Seasons CU in Middletown, Conn.
—Shreveport FCU in Shreveport, La.
—Soo Coop CU in Sault Ste Marie, Mich.
—Summit CU in Madison, Wis.
—University CU in Austin, Texas
—US FCU in Burnsville, Minn.

These non-prime auto loans are one of five products in the Filene Research Institute’s accessible financial services incubator funded by the Ford Foundation.

“Credit unions have a long history as being the proving ground for consumer centric, innovative financial products,” said Cynthia Campbell, director of innovation labs at Filene. “And partnering with the NCUF to test the viability of Non-Prime Auto Loans with mainstream financial institutions was a natural fit since their experience in working with low-to-moderate income consumers is extensive.”

NCUF noted that 88 percent of Americans drive to work. Without a vehicle, NCUF executive director Gigi Hyland acknowledged that options for work, food, childcare and healthcare become limited.

Hyland insisted economic mobility is strengthened through the mobility that comes with affordable, reliable wheels, and this product increases access to affordable vehicle loans to those who have credit challenges.

“Estimates say that families can increase their income by as much as 25 percent with access to reliable transportation,” Hyland said.

“We’re excited to work with not only Filene on this project but also such a wide array of credit unions across the country to give affordable, safe and reliable used cars to those that need them most,” she went on to say.

Moody’s: Caution Grows in Subprime


Moody’s sees finance companies easing off the subprime vehicle loan accelerator, but analysts stopped short of saying that lenders are ready to hit the brakes on originations to consumers with damaged credit histories.

According to a new report from Moody’s, U.S. subprime auto lenders are exercising more caution in granting loans to increasingly risky borrowers, although some data lead Moody's to conclude that a major slowdown in subprime lending is not in the offing.

The report titled, “U.S. Subprime Auto Lenders Somewhat More Cautious,” is based on an analysis of the latest data from Experian.

Moody’s vice president and senior analyst Peter McNally explained that one factor pointing to increasing caution among lenders was improved borrower credit scores for used auto loans in the fourth quarter 2013, the first year-over-year improvement since 2010.

Another factor McNally mentioned is slower growth in the shares of lending in the subprime space held by banks, credit unions, and captive finance companies.

“Declining competition from non-traditional subprime lenders puts less pressure on independent finance companies to lend to weaker borrowers to maintain their lending volumes” McNally said.

“If lenders maintain this caution, loan losses among newer loans could stabilize,” he continued.

McNally also pointed out that rising interest rates on subprime loans also indicate that lenders are becoming more cautious. Previously, APRs were falling despite the decline in credit, suggesting that competition was strong enough for lenders to leave themselves uncompensated for rising risk levels.

“However, rising loan-to-values and loan terms suggest that lenders are still willing to take on increasing risk,” McNally said. “So we don’t anticipate a major slowdown in subprime lending.”

The report also indicated some lenders could also be more hesitant given the deteriorating performance of recent subprime originations. Analysts cited Experian data that showed delinquency rates in recent originations by finance companies, which grant a high share of their loans to less-than-prime borrowers, are increasing.

Loans originated in 2013 had the highest delinquencies since those originated in 2008, according to Experian.

Moody's expects that new loan volumes will remain high, at least through 2015, because market conditions remain favorable for increased lending.

“The improving labor market, along with pent-up demand in the auto industry, will generate new customers. At the same time, persistently low interest rates, which give lenders low cost of funds, will entice lenders to keep making loans,” McNally said.

CPS’ Q1 Earnings Jump 75 Percent

IRVINE, Calif. - 

As its amount of new contracts purchased climbed, Consumer Portfolio Services generated a 75-percent increase in earnings per share during the first quarter.

CPS reported that its Q1 earnings totaled $6.7 million, or $0.21 per diluted share. Those figures are up from the company’s net income of $3.8 million, or $0.12 per diluted share, in the first quarter of 2013.

Officials indicated revenues for the first quarter came in at $68.1 million, an increase of $13.5 million or 24.8 percent, compared to $54.6 million for the first quarter of 2013.

Meanwhile, CPS acknowledged its total first-quarter operating expenses rose $8.3 million or 17.3 percent to $56.4 million, up from $48.1 a year earlier.

The company’s first-quarter pretax income soared to $11.8 million, compared to pretax income of $6.5 million in the first quarter of 2013, an increase of 80 percent.

During the first quarter, CPS purchased $189.9 million of new contracts compared to $173.4 million during the fourth quarter of 2013 and $180.1 million during the first quarter of 2013.

The company’s managed receivables totaled $1.295 billion as of March 31, an increase from $1.231 billion as of Dec. 31 and $968.5 million as of March 31 of last year.

Looking at other performance metrics, CPS noted that its annualized net charge-offs for the first quarter were 5.54 percent of the average owned portfolio as compared to 4.23 percent for the first quarter of last year.

Officials said their delinquencies greater than 30 days (including repossession inventory) represented 6.33 percent of the total owned portfolio as of March 31, as compared to 4.16 percent as of the same date last year.

As previously reported, CPS closed its first term securitization transaction of the year during March and the 12th transaction since April 2011.

In the senior subordinate structure, a special purpose subsidiary sold five tranches of asset-backed notes totaling $180.0 million. The notes are secured by automobile receivables purchased by CPS and have a weighted average effective coupon of approximately 2.51 percent. The transaction has initial credit enhancement consisting of a cash deposit equal to 1.00 percent of the original receivable pool balance. The final enhancement level requires accelerated payment of principal on the notes to reach overcollateralization of 5.00 percent of the then-outstanding receivable pool balance.

“The first quarter of 2014 was a good start to the year for us,” CPS chairman and chief executive officer Brad Bradley said. “We experienced a nice increase in our new contract purchases over the fourth quarter of 2013 and achieved continued earnings growth.

“In addition, we hit a milestone in one of our corporate objectives by fully repaying our senior, secured corporate debt,” Bradley continued. “This demonstrates our continued diligence in deleveraging our balance sheet. As we have discussed in the past, we feel this will position us well to navigate a wide variety of operating landscapes.”

CarMax Still Evaluating New Subprime Strategy


With only about a month of data and originations in the portfolio, CarMax leaders are still waiting for more seasoning and growth to occur before making a significant evaluation of their new subprime financing initiative they launched at the beginning of the year.

According to its report when CarMax closed the fourth quarter of its fiscal year on Feb. 28, the company originated $9.1 million worth of contracts through CarMax Auto Finance that typically would be financed by its third-party subprime providers. CarMax is looking to originate approximately $70 million of loans during the testing phase.

CarMax indicated third-party subprime financing providers accounted for about 17 percent of the company’s sales in the Q4.

“That’s flat year-over-year which represent some moderation versus the first three quarters where we saw an increase to 5 points in Q1 and 3 points in each of Q2 and Q3,” CarMax senior vice president and chief financial officer Tom Reedy said in a conference call with investment analysts.

“As we said in the press release, we launched our test in January to learn more about originating and servicing customers who would typically be funded by our subprime providers. During the quarter, we originated $9 million. It’s very early in this process, and we will share information and learnings once it is appropriate,” Reedy continued in the call transcript posted by SeekingAlpha.com.

The subprime initiative helped CarMax Auto Finance’s four-quarter income climb 6 percent year-over-year to $80.8 million. The company said the gain also was driven by an increase in auto loan receivables, largely offset by a lower total interest margin.

CAF’s average managed receivables grew 23 percent to $7.04 billion, as the finance company’s loan originations have grown in recent years.

Officials added the total interest margin, which reflects the spread between interest and fees charged to consumers and the company’s funding costs, declined to 6.6 percent of average managed receivables in the current quarter from 7.2 percent in last year’s fourth quarter.

Wall Street observers still pushed CarMax management to determine whether its new subprime program started in response to a pullback by third-party providers, a sentiment chief executive officer Tom Folliard hinted at after the close of the company’s fiscal third quarter.

“We can’t control what our subprime providers do or any of our lenders for that matter since they have all their own models,” Folliard said. “They see these loan applications after they’ve been declined by everybody else. They’re terrific partners they’ve been a great add to our business and they allow us to offer credit terms to a full suite of credit profile that enter our store each and every day.

“How they’ll move going forward, it’s very difficult to say but all we were talking about at the end of the third quarter was we didn’t expect to see continued expansion as it relates to the percent of sales,” he went on to say.