GWC Warranty, a provider of vehicle service contracts and related finance and insurance products sold through dealers, recently announced a strategic alliance with National Auto Lenders (NAL), a non-prime auto finance company.
Officials highlighted GWC’s partnership with NAL represents the company’s continuous commitment to bringing the “No Worries” experience to dealers and their customers nationwide.
Through its dealer network, NAL now can offer GWC vehicle service contracts, providing dealers with additional tools for profitability and loan customers with peace-of-mind when purchasing pre-owned vehicles.
“For 20 years, GWC has been committed to helping dealers sell more cars by giving car shoppers the confidence to become car buyers,” officials said.
The average vehicle installment contract term Credit Acceptance originated during the fourth quarter ticked up to 48.5 months. The loosening of terms helped the company generate almost 20 percent more contract volume during Q4 as Credit Acceptance’s active dealer network also jumped above 7,200 during the year.
Chief executive officer Brett Roberts gave a simple answer as to why Credit Acceptance opted to climb about the four-year threshold for its contracts.
“The term in the fourth quarter, it’s just a function of our policy so we got more generous on the term policy,” Roberts said during a conference call after Credit Acceptance shared its Q4 and full-year financial statement. “That's something that really continues a trend that started when I joined the company back in 1991. We did a 24-month term that was the max term that we would do and we've gradually inched that up over the past 25 years so now we will do a longer term and in the fourth quarter we rolled out a policy which we had experimented with which resulted in longer terms.
“We probably wouldn't lengthen the term if we were growing 20 or 30 percent and competition was light,” he continued. “It’s something that you do when the environment is more difficult, and so we did it. It’s calculated. It’s something that we’ve done many times before, and we’re comfortable we can price it.”
All told, Credit Acceptance originated 55,716 contracts during the fourth quarter and 223,998 contract for the year; figures that represented increases of 19.4 percent and 10.8 percent respectively. The company closed the year with 7,247 active dealers, an amount 13.3 percent higher year-over-year.
Credit Acceptance considers an active dealer to be one who has received funding for at least one dealer loan or purchased loan during the period.
Roberts was hesitant to say whether the fourth-quarter origination performance would create a deluge of paper filling Credit Acceptance’s portfolio.
“I think it's hard to say if it's a continuing trend. I mean it is a nice data point,” Roberts said. “It was a good quarter from a volume perspective but I think it’s too early to conclude whether it’s just an aberration or whether it’s something that will continue in the future.”
Top-Line Performance
Credit Acceptance reported consolidated net income of $73.0 million, or $3.45 per diluted share, for the three months that ended Dec. 31 compared to consolidated net income of $65.9 million, or $2.80 per diluted share, for the same period in 2013.
For the year, the company indicated its consolidated net income came in at $266.2 million, or $11.92 per diluted share, compared to $253.1 million, or $10.54 per diluted share, in 2013.
The company’s Q4 adjusted net income, a non-GAAP financial measure, totaled $69.4 million, or $3.28 per diluted share. A year earlier it was $64.3 million, or $2.73 per diluted share. For all of 2014, adjusted net income rose to $271.7 million, or $12.17 per diluted share, compared to $248.3 million, or $10.34 per diluted share, a year earlier.
During the fourth quarter, Credit Acceptance explained that it enhanced methodologies for forecasting the timing of future collections and future dealer holdback payments on loans through the utilization of more recent data, different segmentations and new forecast variables.
Officials indicated implementation of the enhanced forecasting methodologies increased consolidated net income and adjusted net income by $2.2 million and $0.6 million, respectively, for both the quarter and year end.
Completion of $300.6 Million in Asset-Backed Financing
In other company news, Credit Acceptance completed $300.6 million in asset-backed non-recourse secured financing.
Pursuant to this transaction, the company contributed loans having a net book value of approximately $375.9 million to a wholly-owned special purpose entity, which will transfer the loans to a trust. Credit Acceptance will issue three classes of notes:
| Note Class |
Amount |
Average Life |
Price |
Interest Rate |
| A |
$208,000,000 |
2.45 years |
99.98192% |
2.00% |
| B |
$62,000,000 |
3.12 years |
99.98303% |
2.61% |
| C |
$30,600,000 |
3.29 years |
99.99939% |
3.30% |
Company officials explained the financing will accomplish three objectives, including:
— Have an expected annualized cost of approximately 2.6 percent including the initial purchaser's fees and other costs
— Revolve for 24 months after which it will amortize based upon the cash flows on the contributed loans
— Be used by Credit Acceptance to repay outstanding indebtedness
“We will receive 6.0 percent of the cash flows related to the underlying consumer loans to cover servicing expenses,” Credit Acceptance officials said. “The remaining 94.0 percent, less amounts due to dealers for payments of dealer holdback, will be used to pay principal and interest on the notes as well as the ongoing costs of the financing.
“The financing is structured so as not to affect our contractual relationships with our dealers and to preserve the dealers' rights to future payments of dealer holdback,” they added.
Credit Acceptance pointed out the notes have not been and will not be registered under the Securities Act of 1933 and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements.
“This news release does not and will not constitute an offer to sell or the solicitation of an offer to buy the notes. This news release is being issued pursuant to and in accordance with Rule 135c under the Securities Act of 1933,” officials said.
As part of a trio of company developments, CDK Global announced its Contract Validation solution will be released later this year to Fiat Chrysler Automobiles (FCA) dealerships in the U.S.
During the vehicle buying process, the CDK Contract Validation solution can check a vehicle purchase contract for accuracy and acceptability by Chrysler Capital. Contract Validation can complete this task within the sales workflow while the customer is still engaged in the buying process and prior to the contract being reviewed by the financial institution.
Santander Consumer USA through Chrysler Capital, its full-service finance provider for FCA, noted that all Chrysler/Dodge/Ram/Jeep/Fiat/Alfa Romeo dealerships utilizing a CDK Global dealer management system (DMS) in the U.S. will be eligible to use Contract Validation.
“Our technology is developed to make the car buying process more efficient for our dealership clients and their customers,” CDK Global president and chief executive officer Steve Anenen said. “We’re pleased to be the partner that brings this to FCA dealerships.”
CDK has worked with other manufacturers' captive finance organizations, including Volkswagen, Mercedes-Benz and BMW, to launch similar versions of Contract Validation.
According to Tom Dundon, chairman and CEO of Chrysler Capital, “Finance and lease agreements can be complex. Nothing is more aggravating to a consumer or dealer than having to go back to the dealership to re-sign a contract.
“In working with CDK and their jointly-owned financial development organization, Open Dealer Exchange, we have designed a best-in-class approach to assisting our dealers with ensuring the accuracy of contracts prior to them being sent to our team for acceptance,” Dundon continued.
Dealerships using the CDK Drive or w.e.b.Suite DMS platforms can validate contracts from within their normal workflow, allowing them to streamline the vehicle-buying process and give customers a better experience.
Chrysler Capital will be assisting in the roll out by providing benefits to dealers who subscribe to the new offering, such as faster contract funding through a flash-funding process for deals that have had the Contract Validation process applied.
CDK Global, Open Dealer Exchange and e-SignLive Roll Out E-Signatures and E-Vaulting
In other company news, CDK Global, Open Dealer Exchange and e-SignLive recently completed the successful integration of e-SignLive e-signing service into CDK’s platform, as well as the use of the e-SignLive eVault within ODE’s platform.
The companies explained the integration of these technologies is geared to solve an almost universal challenge within the buying and selling experience — the need to speed up the time it takes to prepare, review and sign loan documents on paper and close bookings, while securely storing financial documents and meeting lender program guidelines.
“The collaboration between ODE and CDK Global is an industry-first for e-signing the Retail Installment Contract, known as the RIC, and ancillary documents within the dealer management system and not exporting data to a separate system,” e-SignLive CEO and co-founder Tommy Petrogiannis said. “The dealer has a single process for every deal, customers have a better buying experience and lenders gain maximum benefit with the Retail Installment Contract completed, signed and transmitted electronically.”
While digital or e-contracting has been around for a decade, the companies acknowledged adoption has been limited because of the transaction often falling to paper when it came time to sign the documents. There was also the challenge of meeting regulatory guidelines around the transfer and storage of financial documents. Both these challenges impacted the customer and the dealer experience.
CDK, ODE and e-SignLive believe they have surmounted these challenges and brought an integrated and completely digital approach to vehicle buying, selling and financing.
Here is how the solution can works for dealers and finance companies:
— Through CDK Global’s Dealer Management System (DMS)-based “See What You Sign” technology, which includes e-SignLive e-signatures, customers can electronically sign and complete nearly every document in the funding package on an iPad or touchscreen, with CDK’s eForms library offering 8,500 documents to support the F&I process.
— From the DMS, ODE can process the signature capture sequence and the electronic vaulting of the Retail Installment Contract (RIC), using e-SignLive’s eVault technology. A key advantage of the e-SignLive eVault technology is its ability to support a unique e-vault for each lender, thereby assuring their control and possession of the RIC.
Open Dealer Exchange president Steve Luyckx emphasized that for CDK and ODE customers, e-contracting has become a reality.
“It’s taken several years to build the infrastructure to support e-contracting, and we’re very pleased that we’ve added the final component,” Luyckx said.
“With electronic vaulting complementing our existing electronic document and data transmission and contract validation, we have all of the pieces in place to transform the car buying experience and transmit the entire funding package from dealers to lenders,” he continued. “2015 is the year of the digital deal.”
To find out more about this partnership, visit www.silanis.com/partners-and-apps/partners-and-solutions/open-dealer-exchange.
CDK Global Offers Complete Paperless Payables and Receivables Workflow
In yet another development from CDK Global, the company also launched Cash Management, a completely paperless payables and receivables workflow solution.
The receivables portion of CDK's Cash Management Solution is ePayments. Building on CDK's strategic relationship with CenPOS and its cloud-based payment engine, CDK's ePayments workflow can allow dealerships using the CDK Drive DMS to have an integrated solution to accept online, mobile and alternative payment options such as Apple Pay, Google Wallet, and PayPal.
Integrated with CDK’s Service Edge mobile application, CDK ePayments can give a dealership customer the choice on how they want to pay. They can receive a text/email invoice notification, pay the service balance online via their secure digital wallet, and arrange their vehicle pickup time — all within one application.
Through CDK's strategic relationship with Yooz AP Automation and Nvoicepay, ePayments is coupled with account payables applications that can provide end-to-end, “no touch” invoice processing — automating tedious and error-prone tasks like general ledger coding, approval of invoices, and payment to vendors.
CDK Global vice president of product marketing Justin Sprague pointed out a single dealership may need to process thousands of invoices per month so the time savings can be significant.
With CDK's integrated solution, Sprague indicated dealerships can process payments faster and more accurately.
"With the increasing prevalence of mobile payment transactions, consumers are expecting a similar experience in all retailers, including dealerships,” Sprague said. “By transforming the traditional Receivables and Payables process, we can help dealerships increase revenue, reduce expenses, control risk and improve cash flow.”
New analysis by The Pew Charitable Trusts showed again how much that monthly payment is critical to formulating a vehicle installment contract.
The report indicated the majority of American households are living paycheck to paycheck because analysts discovered 55 percent are savings-limited, meaning they can replace less than one month of their income through liquid savings.
Erin Currier, director of Pew’s financial security and mobility project, explained that even as the national economy continues to recover from the Great Recession, most U.S. families remain financially fragile. Authors of Pew’s report titled, “The Precarious State of Family Balance Sheets,” drew from multiple nationally representative data sources to develop what they believe is a clear picture of household financial security in the United States.
“Our analysis finds that many American families, even those with relatively high incomes, are walking a financial tightrope,” Currier said.
“Many have little if any cushion to absorb an unexpected financial setback. It’s a precarious state that threatens not just financial security, but upward mobility,” she continued.
Because families are so financially pinched, they’re stretching terms to keep their vehicle installment contracts affordable. According to the latest information available from Experian Automotive that took a glimpse of data from October and November, the volume of contracts ranging between 61 to 72 months jumped 40.3 percent year-over-year. And the increase for contracts lasting between 73 and 84 months climbed 25.7 percent year-over-year.
Meanwhile, Experian mentioned the average monthly payment for a new vehicle stands at $479, while for a used model the payment sits at $355.
More findings in the Pew report revealed widespread financial fragility, including
— Although income and earnings have increased over the past 30 years, they have changed little in the past decade. The typical worker had wage growth of 22 percent between 1979 and 1999 but just 2 percent from 1999 to 2009.
— Substantial fluctuations in family incomes are the norm. In any given two-year period, nearly half of households experience an income gain or drop of more than 25 percent, a rate of volatility that has been relatively constant since 1979.
— The Great Recession eroded 20 years of consumption growth, pushing spending back to 1990 levels. As a result, the net increase in average annual household spending is just 2 percent since 1990.
— Even when pooling all of its resources — including from accounts that are potentially costly to access, such as retirement accounts and investments — the typical middle-income household can replace only about four months of lost income.
— Most families face financial strain across all balance sheet elements: income, expenditures, and wealth. Fully 70 percent of households face at least one of these problems, with many confronting two or even all three.
— The report concludes by noting that policymakers should focus on policies and programs that support asset accumulation, which can help meaningfully improve American families’ financial standing.
Sources for the data in the report include the Congressional Budget Office, the U.S. Census Bureau’s Current Population Survey, the University of Michigan’s Panel Study of Income Dynamics, the U.S. Bureau of Labor Statistics’ Consumer Expenditure Survey, and the Federal Reserve Board’s Survey of Consumer Finances.
For dealers and finance companies with business interests in the Midwest, Huntington Bank’s third annual Midwest Economic Index is offering an encouraging forecast for possible deliveries and originations.
The index showed 16 percent of consumers in the region definitely will purchase a vehicle in 2015. Huntington indicated the response represents a 10-percent increase over definite intent for vehicle purchases in 2014 and is a “clear sign of optimism” among consumers interviewed in Indiana, Michigan, Ohio, Pennsylvania and West Virginia.
“It’s still a great time to buy,” Huntington Auto Finance director Rich Porrello said. “Consumers are benefitting from low interest rates, high trade-in values and a wide range of manufacturer incentives.
“Add to that enthusiasm for an outstanding 2015 model year, falling gas prices and the ongoing economic recovery, and we’ll continue to see strong buyer demand throughout the year,” Porrello continued.
In comparison to consumers with definite plans to purchase a vehicle in 2014, the Midwest Economic Index revealed increases of 13 percent in West Virginia, 12 percent in western Pennsylvania, 11 percent in Indianapolis, 9 percent in Michigan and 8 percent in Ohio.
Referencing an IHS Automotive study based on Polk Co. registration data, Huntington pointed out the average vehicle on American roads continues to run more than 11 years old, leaving the industry poised for a sixth consecutive year of growth in the number of vehicles sold.
In line with this growth, Huntington experienced its fifth consecutive year of record loan production in 2014. With loans totaling $5.2 billion, Huntington financed more vehicle than any other time in its 60-year history serving the automotive industry.
During the year, Huntington added hundreds of dealers to its network, which now totals more than 3,700 dealers in 17 states.
Additionally, Huntington highlighted that it flourished in super-prime lending, serving dealers locally and delivering 70 percent of indirect loan decisions within 3 seconds or less.
Auto/Mate Dealership Systems recently launched Option/Mate Mobile, a mobile-optimized version of its F&I menu solution for dealers.
The company explained F&I managers using Auto/Mate’s dealership management system now can offer customers at their stores a variety of menu presentations on a mobile tablet. Option/Mate Mobile can allow the customer to view F&I product menus, learn more about products that interest them and drag and drop different product selections into a customized package.
“Offering customers a mobile tablet featuring F&I product menus paves the way for increased engagement, sales and retention opportunities,” Auto/Mate Dealership Systems president and chief executive officer Mike Esposito said. “Using Option/Mate Mobile has the potential to increase a dealer's gross profit per deal by an average of 20 percent.”
After the turn over from sales, often customers have to wait until the F&I manager is available. Esposito explained that handing customers a tablet with a display of the F&I menu during this wait time is optimal and helps to shorten the sales process.
While they are waiting, the customer can answer a questionnaire about how they plan to use their vehicle. The answers they provide can result in a custom menu presentation of F&I products such as warranties, service contracts, tire and wheel protection plans, insurance, roadside assistance and more.
If the customer is not familiar with the benefits of a product, they can click on a link to find more information or watch a video demonstration. A mobile presentation of product benefits is often perceived by customers as imposing less pressure upon them to make a purchasing decision, compared with when they are sitting in front of the F&I manager.
“This makes the customer feel more in control and empowered with information, which in turn builds trust and ultimately increases product sales,” Esposito said.
When the customer is finished viewing all the menu items, information on which products they chose and forfeited is instantly updated in the menu on the F&I manager's computer for easy processing.
Option/Mate Mobile is compatible with all tablet devices including Apple OS (iPads), Android and Windows platforms.
Option/Mate is a five-in-one product that can allow F&I staff to create detailed menus for customers. Group options, rate schedules, and display features can be set as defaults but can be changed on a case-by-case basis.
For more details, visit www.automate.com or call (877) 340-2677.
Experian Automotive recently launched a new tool the company is calling its Auto Equity Model, a consumer credit–based solution designed to help finance companies and dealers estimate the current equity on an individual’s open vehicle loan.
Officials explained this level of insight can enable users to identify and target a segment of the consumer population that may be in the market for a new vehicle or interested in refinancing their current loan. The model also can help zone in on the consumers that meet specific risk criteria.
“In today’s competitive automotive environment, it’s important for lenders and dealers to understand whether or not consumers are right-side up or upside down on their current vehicle loans,” said Melinda Zabritski, Experian’s senior director of automotive finance.
“Through Auto Equity Model, we’re able to provide users with key insights, enabling them to refine their communications and target the ideal consumer, ultimately helping them to make better business decisions and improve profitability,” Zabritski continued.
Zabritski went on to note Auto Equity Model leverages Experian’s consumer-credit database to estimate the dollar amount of equity a consumer has on their vehicle loan. The model was built with advanced techniques and requires only information found in a consumer’s credit profile to provide an estimated equity value.
Once the equity of the consumer’s vehicle has been determined, finance companies and dealers can segment the population to meet specific criteria — for instance, showing or identifying all consumers who have more than $1,000 of equity on their vehicle.
Experian believes this process will enable finance companies and dealers to target their ideal customer better and generate prescreened offers for consumers looking to refinance or purchase a new vehicle.
Westlake Flooring, a division of Westlake Financial Services, recently financed the acquisition of Phoenix Truxx’s current dealership location, helping the heavy-duty truck enterprise consolidate its operation in New Jersey.
Officials highlighted the property had been in bankruptcy foreclosure and Westlake came in with the capital to allow the deal to take place. Westlake drew up a plan that met the deadlines of the foreclosure and established a credit facility for Phoenix Truxx in the amount of $1.25 million.
The parties were able to close the purchase of the dealership location on Dec. 4.
“Westlake Flooring credit lines are competitive and quick to approve, which is why we were able to help Phoenix Truxx purchase a location in less than 30 days,” said Garrett Jorewicz, vice president and general manager of flooring at Westlake Financial Services.
The company mentioned the real estate transaction allowed for Westlake Flooring to increase its lending commitment to building the dealer’s inventory levels. The additional equity in the collateral from the location allowed Westlake to triple Phoenix Truxx’s inventory credit limit to $750,000.
“Phoenix Truxx has always been a great flooring customer, so their credit line was an easy approval,” said Patrick Amato, vice president of flooring at Westlake Financial Services. “Due to several guarantees, we were able to expedite the loan.”
Phoenix Truxx owner David Fox, and general manager Jon Olin, have maintained a credit line with Westlake Flooring since its inception. The dealership specializes in diesel work trucks and was operating in multiple lots until the recent purchase of its store in South Amboy, N.J.
With Westlake’s assistance in this purchase, the dealership was able to streamline its business practices and now operates out of one central location.
“The transaction allows Phoenix Truxx to be more flexible,” Fox said. “Westlake has given us the opportunity to build equity and gave us more buying power to grow our business. It is a powerful force to combine our business ambitions with that of an established company like Westlake Financial. They believed in us from the start, and we continue to show our support by directing the majority of our business their way.
If all our eggs are in one basket, it is due to the fact that we have developed a strong relationship and are keeping our capital costs as low as the market allows,” Fox added.
Westlake Financial Services offers dealerships a variety of services including auto financing, portfolio purchasing, floor planning, customer referral programs, lines of credit and more.
“Westlake Financial strives to be the premier diversified financial services organization, providing our dealerships with a variety of services to help grow their business,” said Ian Anderson, group president of Westlake Financial Holdings.
“Westlake specializes in the purchase of auto contracts from dealerships, and we offer many other services to help dealerships grow their business exponentially,” Anderson continued. “Whether the dealership needs to finance a location with a line of credit, purchase vehicles with flooring lines, or sell their BHPH portfolios with bulk purchase, Westlake Financial can help.”
Westlake Financial’s Latest Charitable Deeds
In other company news, Westlake Financial Services recently contributed nearly $20,000 in donations and basic necessities to organizations and families.
Westlake PALS (People Affecting Lives through Service) consists of a group of community minded employees that volunteer their time and energy to a variety of events and nonprofits in the greater Los Angeles area.
“Westlake continues to grow and expand rapidly, and part of our success is driven by Westlake’s passion for helping others,” Anderson said. “Further, Westlake prioritizes sharing our success by giving back to the communities we serve. Westlake is proud to make a positive and lasting impact in the lives of others.”
One of the organizations that benefited from Westlake’s charitable donations was K2 Adventures Foundation, which positively impacts the lives of people with disabilities around the world by merging philanthropy and memorable travel experiences.
“K2 Adventures is a nonprofit organization that is dear to my heart,” said Kyle Maynard, a K2 Adventures Foundation board member. “I am proud to be a board member of an organization that gives those with disabilities the opportunity to conquer obstacles that others previously told them they could not overcome.
Instead, K2’s philosophy is a can-do mentality and helps individuals achieve great things. I would like to thank Westlake Financial for their generous donation,” Maynard continued.
Maynard, born with a congenital amputation, recently shared his inspiring stories with Westlake Financial Services employees at their annual sales conference at the MGM in Las Vegas. He is a motivational speaker, author, entrepreneur and athlete.
In order to give the families that were assisted the best holidays possible, Westlake employees held company wide fundraisers such as the Santa Photo Booth and Holiday-Grams to raise money. Donations for basic needs and toys were also collected to help out with other organization’s holiday charity drives.
In addition to the K2 Adventures Foundation donation, Westlake’s contributions benefited these charitable organizations as well:
— Toys for Tots, led by the U.S. Marine Corps Reserve, collects new, unwrapped toys to distribute to less fortunate children to provide them a message of hope during the holidays.
— Fred Jordan Mission works on the streets of inner city Los Angeles and throughout the world to provide nourishing food, warm clothing, blankets and other vital services for those in need.
— Bikers Against Child Abuse (BACA) strives to establish a safer environment for abused children so they embrace the world they live in rather than fear it.
— Transition in Process (TIP) helps returning veterans and families get back on their feet.
Every year, Westlake PALS puts together the Adopt-A-Family program and pairs employees up with local people in need. In December, Westlake Financial Services employees came together to assist 36 families during the holidays through their sixth annual Adopt-A-Family program.
“Westlake has been creating a culture focused on its people, so carrying this over into the community was a seamless transition,” Amato said.. “Anytime you are volunteering, you want to include people who are energetic, and that’s a great example of what Westlake PALS represents.
“Getting the opportunity to volunteer with great people and to assist those who are truly in need never feels like work because of all the fun we have,” he continued. “People continue to help out and recruit fellow employees since everything we do is fun and focused on helping others that can use support.”
Emphasizing three main capabilities, vAuto introduced what it dubbed a Subprime Booking module as part of its Provision system to help dealers address the challenges of properly acquiring subprime inventory and matching credit-challenged customers to those vehicles.
As the latest innovative module in vAuto’s Provision used-vehicle inventory management system, the Subprime Booking tool is geared to assist dealers:
• Easily determine the subprime potential of every auction or trade-in appraisal
• Verify multiple lenders’ criteria against any appraisal at once
• Arm sales teams with available subprime inventory to efficiently match customers to the right models early in the sales process
Officials from vAuto unveiled their new Subprime Booking module at the National Automobile Dealers Association Convention, which opened on Friday in San Francisco.
“With some analysts predicting double-digit increases in the number of subprime used vehicle financing deals in 2015, it’s ever-more important that dealers proactively take advantage of increased retail opportunities in this market segment,” said Dale Pollak, vAuto founder and executive vice president at Cox Automotive.
“vAuto’s new Subprime Booking tool helps dealers address two of the persistent challenges they face with credit-challenged customers — stocking cars that will meet lender criteria and matching these cars to subprime customers right away in their sales processes,” Pollak continued.
With a proper vehicle as part of the deal, vAuto vice president and general manager Randy Kobat believes the company’s latest solution will help stores push out contracts that have a better chance of the loan being purchased by multiple finance companies
”Dealers often feel frustrated that they’re missing subprime deals because they can’t get customers ‘bought’ in the F&I office,” Kobat said.
“The Subprime Booking module eliminates this frustration by giving dealers the opportunity to instantly recognize a vehicle’s fit as a subprime unit and helping their sales teams connect credit-challenged customers with the right cars before they get to the F&I office,” he went on to say.
The pool of subprime borrowers for finance companies to service potentially could be getting deeper judging by the reason Swapalease.com cited as the trigger for auto lease credit approvals for 2014 dropping by nearly 9 percent year-over-year.
Swapalease.com reported last year’s rate settled at 69.0 percent, down from the 2013 approval rate of 77.7 percent. December ended with a monthly approvals rate of 60.9 percent, down from the previous December that saw 73.3 percent auto lease approvals.
Swapalease.com executive vice president Scot Hall explained student loans continue to be a factor in vehicle lease credit approvals since leasing is popular with shoppers under 35 years old.
And while lease penetration rates have risen to near all-time highs entering 2015 — with nearly 30 percent of all new-vehicle sales now representing leases — Hall maintained that credit remains the lifeblood of the lease transaction.
"The year ended much the same way it progressed, with turbulence as the approvals theme for the entire 2014 campaign," Hall said. "We feel that as long as there is a concern with student loans, there will continue to be volatility in credit approval rates in our marketplace.”
And that volatility might not be dissipating anytime soon. Amy Crews Cutts, senior vice president and chief economist at Equifax, pointed out how much student loans constitute non-mortgage consumer debt, which Equifax determined to be $3.1 trillion. Equifax said that November reading was the highest level in more than five years.
When discussing the Equifax National Consumer Credit Trends Report last month, Crews Cutts noted that student loans have grown from 20.2 percent to a “whopping” 37.3 percent of that non-mortgage consumer debt amount.
When consumers aren’t approved at the dealership because of stressed credit levels because of factors such as outstanding debt, they can turn to the Swapalease.com marketplace as a vehicle-shopping alternative.
While Swapalease.com saw a larger volume of car lease shoppers overall in 2014, roughly 10 percent more compared with 2013 levels, the marketplace also saw a larger number of distressed shoppers that came with student loan burdens that altered the credit approval rate.
In light of the student-loan figure, Cutts said, “One way to read this change is that consumers now value investment (in their education and durable goods like cars) over immediate consumption, which is good for our economy over the long run.”
