Bankruptcies are at a three-year high, jobless claims at a 14-year high and both are increasing. So, what are the subprime lenders doing to remain profitable?

What can you do to guarantee the survival of these needed financing sources? And where do you stand with your lenders? 

More than 100,000 people filed and more than 65,000 people discharged a bankruptcy in October 2008. This proved to be the busiest month for the bankruptcy court system since the Bankruptcy Abuse Prevention and Consumer Protection Act went into effect more than three years ago. 

What exactly does this mean for you and your lenders? 

Great News! I recently caught up with Dedra Muffley, of Tidewater Motor Credit, to get her view.

"Historically we have been booking fresh BK deals since the year 2000 and they are by far our best performing loans," she explained. "We are looking to do away with the non-bankruptcy paper or customers who look like they are on their way down. 

"We want the customers that have their problems behind them. You are seeing the larger subprime lenders, the AmeriCredit's and CapOne's, becoming our competition with these fresh discharges," she added. 

I also asked Muffley what Tidewater Motor Credit is doing to remain profitable besides buying the historically high performing fresh BK deals. 

"We are looking at all of our expenses including look-to-book ratios. Those dealers who have been long time loyal dealers really want to help us. They definitely want to see that we are here for them over the next 12 months and beyond," she explained. 

"Some of our dealers have even gone off automated platforms where it costs the lender per-application and have gone ‘old school' by faxing in credit applications and deal structure," concluded Muffley. 

How can dealers help guarantee the survival of lending sources? According to a top level executive with a large national auto dealer group, the three word answer is simple, "Relationship, Relationship, Relationship!" 

"We know our subprime lenders are going back to the basics by buying fresh BKs or higher credit score deals with solid down payments," he explained. "So that is what we are sending them." 

Reid Anderson, special finance director of a Dodge Chrysler Jeep dealership agreed. 

"My partner-style bank relationships are critical to our success. By working with our customers one-on-one, I get their entire story and can relay those findings on to the lender," spelled out Anderson. "We have found this helps our individual lender portfolios perform better."

Ron Odom, general manager of a high volume Chrysler GMC franchise, takes this approach: "We try to maintain relationships with the underwriters. We do not want to waste their time and money by shot-gunning or sending applications that clearly do not meet their underwriting guidelines. 

"I believe approval-to-book ratios are important, and I usually go with the lender that made the best first call," he continued.

I also asked Odom about his current business. "I agree with Ms. Muffley," he added. "Right now we see a lot of applicants that are a BK waiting to happen and are tougher to get bought. My lenders are more aggressively buying and funding the fresh BK loans, and I can see why. They can not file for bankruptcy again for quite some time, and their debt to income ratios are in good shape," said Odom.

Finally, the million-dollar question! Where do you stand with your lenders? If you honestly do not know the answer, now is time to find out. Call your lenders or ask them to stop in. Find out how your portfolio is performing and ask how you could improve it. 

Also, keep an eye on your look-to-book and approval-to-book ratios with each lender.  The fastest way to get cut off by a lender is by having them review applications that do not meet their guidelines or only send them a very small percentage of the deals they approve.

The overwhelming approach of the professionals I spoke with is to stress the importance of the dealer-lender relationship and the value of the fresh BK customer. With lenders preferring "old school" methods in today's environment, your relationship will naturally improve. However, you must take the extra steps to strengthen your footing with your lender partners. 

Those of you with the best partner-style lender relationships will prosper, while dealers with poor look-to-book ratios and limited interaction with their lenders will struggle in the months to come.

Robert Davies is the president of Direct Marketing Associates Corp. and, industry leaders in subprime marketing since 1997. Robert may be contacted at (800) 942-3603 or via