Only two more days remain in April; what’s likely to go down as the most destructive month ever experienced by the U.S. economy. More than 26 million American workers already have filed for federal unemployment benefits. Billions of dollars in federal stimulus funds are being pushed to consumers and businesses, so the economy didn’t completely throw a rod and the U.S. commercial engine would quit running altogether.

Undoubtedly a portion of that suddenly unemployed figure have asked auto-finance companies for modifications to their existing installment contract or vehicle lease. But what about the paper coming into portfolios, especially in the non-prime and subprime credit spaces?

Consumer Portfolio Services chairman and chief executive officer Charles “Brad” Bradley Jr. regularly lets his frank industry observations be known when the company hosts its quarterly conference calls with the investment community. Bradley did again when CPS conducted its call back on April 16.

“We said for multiple years that a recession would have an interesting effect on the industry. This will probably fill that bill,” Bradley said. “We’ve already heard lots of other companies are slowing down. Lots of companies have had layoffs. A few companies have ceased to originate already.

“It’ll be very interesting to see the overall effect on the competitors in the industry,” he continued.

Westlake Financial Services absorbed the $103 million active portfolio of one of the providers that already has exited the business — Coastal Credit, which shut down its operations in Indianapolis in March, laying off 127 employees.

Another subprime provider — Nicholas Financial — said in a filing with the Securities and Exchange Commission posted on April 13 that it was temporarily furloughing approximately 40 employees that represent 15% of the company’s workforce. Nicholas Financial said it anticipates the furlough period will end on May 17, and all furloughed employees will be eligible to return to work starting on May 18. 

“The furlough period will be reassessed as business conditions dictate by the company,” Nicholas Financial said.

And one of the largest subprime auto finance companies — Credit Acceptance — did not specify furloughs or layoffs in its own SEC filing. But Credit Acceptance delayed the release of its first-quarter financial statement, saying, “the current outbreak of COVID-19 has adversely impacted our business, and the continuance of this pandemic and any future outbreak of any other highly contagious diseases or other public-health emergency could materially and adversely affect our business, financial condition, liquidity and results of operations.”

Just this week certain states like Georgia started to lift shelter-in-place orders. In states where COVID-19 is a greater problem like New York, stay-at-home directives remain.

“The longer it lasts, I think the more painful it would be for a lot of our friendly competitors,” Bradley said during CPS’ recent conference call.

Those subprime competitors of CPS, shops like Credit Acceptance, Nicholas Financial and Westlake, likely are not booking paper like their higher-credit tier contemporaries — captives — the providers included in the moving television advertisements broadcast nowadays that tout 84-month terms and deferments for as long as 120 days.

Again, Bradley speaking earlier this month said, “One of the first things we did, I think most people did, is we tightened in credit. We wanted higher income, a higher payment income. We pretty much stopped making any exceptions to any of our programs and we raised the score across the board.

Bradley then added, “Tightening credit was an obvious thing to do.”

Cox Automotive chief economist Jonathan Smoke pointed out yet another reason why finance companies likely tightened underwriting.

“Subprime accounts that are severely delinquent are up to the highest level since at least 2006. In March, 1.49% of auto loans were severely delinquent, the highest delinquency rate for the month of March since 2009,” Smoke wrote in this blog post.

On Friday, the calendar turns to May. Perhaps next month, the pandemic begins to mitigate noticeably and the economy starts to recover. In the auto-finance segment, there are already flickers of improvement, according to Dealertrack data shared by Cox Automotive.

Based on information as of April 20, Dealertrack found same-store unique credit application submissions for the previous week were down 33% year-over-year for new vehicles and 20% for used vehicles as both readings marked improvements from the prior week.

As for the subprime auto finance space in particular? Bradley likely summed it up best.

“We’ve heard rumblings of all sorts of different things in the industry. We can’t really put a finger on what’s going to happen,” he said.

Well put, Brad, so let’s all stay tuned.

Nick Zulovich is senior editor at Cherokee Media Group and can be reached at nzulovich@cherokeemediagroup.com.