IRVINE, Calif. — Much like the housing market, the
automotive industry experienced a severe down cycle following the recent
economic crisis. Starting in 2011, however, our industry has taken tremendous
steps toward recovery. Auto sales are on the rise, along with the number of
credit-challenged customers looking to finance vehicle purchases, especially
pre-owned vehicles. In fact, the year 2012 represented the best used-vehicle
sales since 2007 with 40.5 million units being driven off the lots. That's up
4.5 percent since 2011.

As a result of pent-up demand, a significant increase in
sales and a heightened competitive landscape, automotive dealers are venturing
into ever-deeper subprime auto loans. In fact, consumers with the lowest credit
scores are seeing higher rates of approval for auto loans, with a 13.6-percent
increase for new cars loans and a 5.47 percent increase for used-vehicle loans
in 2012 over 2011. Subprime buyers with FICO scores of 550 or less jumped to
17.1 percent of total used-vehicle sales in December of 2012 – up drastically
from 9.8 percent in December of 2011.

At the same time, we've seen the value of vehicles,
particularly pre-owned vehicles, continue to go up. For the month of December
2012, the average used transaction price hit $12,678 – compared to $11,531 the
previous year. The total value of sales for December 2012 was $14.5 billion, up
from $11.3 billion the previous year.

Delinquencies Starting to Shift

While dealers and lenders are approving deeper loans for
customers with lower credit scores, we are now starting to see an increase in
delinquencies and repossession rates. According to a recent Experian study,
30-day delinquencies have gone up 1.3 percent between Q1 of 2012 and Q1 of
2013. Repossession rates are now showing a significant increase, with a
16.9-percent increase from Q1 2012 to Q1 2013.

After a few quarters of low delinquencies and repossessions,
we are starting to see a shift and these figures are starting to climb. This
can in part be explained by the fact that subprime financing continues to rise
rapidly, therefore increasing the likelihood of customers being delinquent.
Even though the rates have increased compared to last year, the rates are still
low overall. But does the rosy news of increase sales and still relative low
delinquencies mean that dealers shouldn't be worried about risk and a potential
shift in the tide?

Preparing for the Next Storm

On the contrary, this unprecedented combination of market
factors means that dealers and lenders should be preparing now for the next
inevitable downturn in the automotive industry. So what is the smart money
doing? Some dealerships and financing institutions are taking extra precautions
to ensure the subprime loans they approve are airtight, some employing more
stringent stipulations verification processes for example. But by far the most
effective strategy smart dealers and lenders are adopting is the deployment of
a GPS-based collateral management system (CMS).

The best GPS-based CMS solutions allow dealers to track the
exact movement and location of their vehicle assets in real-time. So in the
event credit-challenge customers begin to default on their deep subprime auto
loans, these dealers and finance institutions will be able to send payment
reminders to keep their customers payment behavior on track or if needed
quickly locate delinquent vehicle assets for fast, cost-effective repossession

Stefana Houldsworth is the director of product management
Spireon, makers of GoldStar GPS the CMS solution that can meet this
comprehensive check-list of best practices. Dealers and lenders who implement
GoldStar GPS not only protect their vehicle assets and their profits from a
future down-cycle in the market.


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