GAINESVILLE, Ga. -

The staff at Black Blook Lender Solutions envisions underwriting personnel at finance companies watching two computer screens when evaluating an application that arrives from a dealership in their network. One screen shows the applicant’s complete credit history. The other monitor shows the depreciation history and projections for the vehicle expected to be attached to that contract.

“If it’s not happening, it should be,” said Jared Kalfus, the vice president of data licensing at Black Book.

“Data is really becoming paramount and becoming more integrated into that decision-making process,” Kalfus continued. “If you look at it from different angles and benefits you can receive, the data should be analyzed from many different views. You can leverage that data to spot opportunities that might not have been so obvious and new opportunities that might have been easily identified.

“The analytics really help those lenders find new profit centers with vehicles they might not have historically looked at or shied away from,” he went on to say.

Black Book reached out to SubPrime Auto Finance News to continue the discussion generally being dubbed, “the new normal.” It’s a theme that dominated conversations earlier this year when the American Financial Services Association conducted its annual Vehicle Finance Conference. Recent data from J.D. Power and Experian Automotive indicates finance companies are booking more loans at 72 months — maybe even longer — and loan-to-value ratios are climbing.

Black Book editorial director Ricky Beggs believes these trends go back even further than when the calendar flipped to 2014.

“In the last two years during a lot of conversations, similar concerns that pop up are the length of these loans and their loan to value ratios that are out there,” Beggs said. “And because the vehicles are being collateralized a little bit higher, that puts even more questions out there. Then you add in the competition between the lenders. They’re getting pressed and pushed to make more loans to make more profit and get that loan on the books.”

So how do finance companies navigate this ‘new normal’ that doesn’t appear to be going away any time soon? Black Book insisted its Collateral Insight Engine can be a tool to leverage. Product manager Brett Collett ran through some examples with SubPrime Auto Finance News this week to give finance companies some hard figures to consider.

Collett explained a finance company might sustain a $500 loss if a $25,000 loan with a 60-month term and a 4-percent APR ends up in a recovery situation after two years. That loss can balloon up to $3,500 if the term originated was at 84 months but went into recovery at the same junction.

Collett insisted that risk can be mitigated if finance companies can get a better grasp on the collateral value retention projections before even delving into terms that long; again that “new normal” financing companies are encountering.

“That’s a huge spread and risk that those lenders are taking with this pricing competition, and that’s assuming a 15-percent depreciation rate,” Collett said. “But as we all know each vehicle depreciates differently. Understanding the past trends and future projections will determine which side of the fence you might land. Are you going to be in a better position because you’ve got better collateral that you can put longer terms on? Or are you going to be in a worse position because you took riskier collateral with those longer terms?

“Lenders all have proprietary credit models but they rely on a lot of the same data,” he continued. “Having collateral inside that mix can mean the difference between a profitable decision in this ultra-competitive environment versus non-profitable decisions.”

According to Black Book data, used vehicles from the model years 2008 through 2012 depreciated by 1.1 percent overall in February, showing stronger seasonal retention compared to the 1.9 percent rate decline in January.

Beggs indicated average pre-recession depreciation is historically between 1 percent and 2 percent monthly, and Black Book expects overall 2014 depreciation of 13.5 percent.

Beggs also emphasized this time of year is when finance companies should pay extra attention to vehicle depreciation trends. He offered an example of what’s been happening recently with entry-level models, both compacts and midsize cars.

“Overall those are not segments that we feel like are going to be very strong segments retention wise for the overall year,” Beggs said. Some of the reasons are the volume of those vehicles in the marketplace, more players in those segments because of (Corporate Average Fuel Economy) requirements, and the level of gas prices we have right now and what are expected for the rest of the year being stable in relation to what we saw in 2008 and 2009.

“But if you look at the last three weeks, those segments have actually done the best in retention or lack of depreciation,” he continued. “That’s being driven primarily because of this time of the year, the tax season market. These are the lowest priced average cars out there so they fit well in that buy-here, pay-here and subprime market that gets a lot of attention in tax season.

“The fact that you’ve got a difference right now in what these segments should be overall for the year becomes important to see and that’s what Collateral Insight Engine looks at from the big picture,” Beggs went on to say.

Beggs closed with one final point about why finance companies need to monitor vehicle deprecation.

“If you look at dealer side, they have a good grasp of the cars based on their experience of what they’re buying and selling,” Beggs said. “When you look at it from the lender side, they don’t know the car itself but they know lending. They need to be able to depend on analytics to complement their lending experience to determine what is the good risk.”

Here is the complete breakdown of Black Book recorded February value changes of used vehicles for model years 2008 through 2012:

 Bodystyle  3/1/13  2/1/14   Sequential Change  3/1/14  Annual Change
 All Vehicles  $21,051  $18,342   -1.1%  $18,137    -13.8%
 Domestic Car  $14,389   $12,316   -0.6%  $12,244  -14.9%
 Domestic Truck  $19,233  $17,000   -0.9%  $16,845  -12.4%
 Import Car  $22,633  $19,403  -1.1%  $19,191  -15.2%
 Import Truck  $23,423   $20,759  -1.5%  $20,452   -12.7%
 Minivan Cargo  $10,955  $9,386  -3.4%  $9,068  -17.2%
 Full-size CUV  $25,240  $21,544  -2.0%  $21,105  -16.4%
 Midsize CUV  $21,663  $18,815  -2.0%   $18,446    -14.8%
 Compact CUV    $15,220  $12,981  -1.5%  $12,784   -16.0%
 Midsize Pickup  $18,304  $16,889  -1.5%  $16,638  -9.1%
 Midsize SUV    $20,546  $18,005  -1.3%  $17,765  -13.5%
 Entry Level Car  $8,881  $7,399  -1.3%   $7,303  -17.8%
 Prestige Luxury Car   $41,472  $34,796  -1.3%  $34,351  -17.2%
 Luxury SUV  $38,775  $34,437  -1.2%  $34,028   -12.2%
 Premium Sporty Car  $53,286  $46,797  -1.2%  $46,248  -13.2%
 Near Luxury Car  $21,007   $18,189  -1.2%  $17,979   -14.4%
 Compact Pickup  $16,224  $15,215  -1.1%  $15,047   -7.3%
 Upper Midsize Car  $12,918  $11,023   -1.1%  $10,902  -15.6%
 Luxury Level Car   $23,982  $20,658   -1.0%  $20,445  -14.7%
 Sporty Car  $21,957  $18,879   -0.9%  $18,710  -14.8%
 Compact Car   $10,752   $9,130  -0.9%  $9,051  -15.8%
 Compact SUV  $17,023  $15,963   -0.8%  $15,828  -7.0%
 Minivan Passenger   $14,772  $12,745  -0.8%  $12,638   -14.4%
 Full-size Pickup  $24,702   $23,165  -0.7%  $23,010  -6.9%
 Full-size Cargo Van  $14,116   $12,384  -0.5%  $12,327  -12.7%
 Entry Midsize Car  $12,788  $10,611  -0.5%  $10,563  -17.4%
 Full-size SUV  $22,998   $20,430   -0.4%  $20,342  -11.6%
 Full-size Car  $15,265   $12,887  -0.4%  $12,841   -15.9%
 Full-size Pass. Vans  $14,711   $12,804   -0.2%  $12,774   -13.2%