CARY, N.C. — Of the four public dealer groups that conducted
conference calls this week to discuss second-quarter results, only one shared
details about noticeable changes regarding relationships with lenders as
heightened regulation comes from the Consumer Financial Protection Bureau.

Executives from Asbury Automotive Group said they have, in
fact, seen some changes in policies and procedures from commercial banks since
the CFPB began to investigate and issue enforcement actions in connection with
vehicle lending. SubPrime Auto Finance News published details and reaction to
the bureau's actions against U.S. Bank last month.

"We don't have a lot of visibility, virtually no visibility
as to where this is going," Asbury president and chief executive officer Craig Monaghan
said. "What we do know is that we have limits or caps in place on the F&I
product and the rates that we offer to our customers, and the banks do, as well.

"I would say — and this is just a gut thing because I don't
know the statistics — it does feel like the banks have become I don't know if diligent
is the word or focused," Monaghan said. "We are seeing more caps in stores on
transactions. It's almost like there is some preparation that's already
happening."

When asked by Wall Street analysts to elaborate about the
evaluation, Monaghan said that each contract is "unique," be it for a new
or used vehicle.

"You may see a bank offer a rate on a transaction, and
they'll cap the spread," Monaghan said. "They'll say, ‘Here's the rate we're
willing to offer, and you can't take a spread any greater than X.' In some
cases, those caps will be even tighter than our caps."

Since Asbury's F&I department is beginning to experience
some changes, Monaghan touched on what that situation might do to the company's
bottom line and how much gross profit it still can generate with each retail
sale.

"The spread and yield is like a balloon in our mind. You can
push on it in one place, and it expands in another place," he said. "It's
amazing to me that our front-end yield in the $3,000 range has been there for
probably five to seven years, very steady growth. But at different times it
comes from different places.

"If there is a shift here in the way that we finance
transactions, that will put pressure on us to try to find another way to try to
keep that front-end yield at about $3,000 a unit," Monaghan went on to say.

Asbury executive vice president and chief operating officer Michael
Kearney emphasized much of what Monaghan stated along with trying to project
what the company will do going forward.

"I think the banks are in an anticipation mode," Kearney
said. To go along with what Craig said, we have little transparency into what's
going on at the government level. But I would also emphasize that as a model,
retailers are quite resilient and we will deal with whatever we need to deal
with. We have caps in place as Craig said, and we still function quite well with
all of those caps that we've had in place for years."

Sonic, Lithia, Group 1 See Little Change

Meanwhile when asked about the CFPB during its respective
conference calls, executives from Sonic Automotive, Lithia Motors and Group 1
Automotive relayed how they haven't noticed the impact from the CFPB like
Asbury has.

"We haven't seen any of our preferred lenders change any of
their procedures or rules at all," Sonic executive vice president and chief
financial officer Heath Byrd said. "We get this question at every investor
meeting we have as well. The bureau has been a little more active. We saw back
in June they had this procedural ruling where they now have jurisdiction over
non-banks. That's a little concerning.

"But we have caps in place. We have for years," Byrd continued.
"We have procedures in place to ensure against discrimination. We don't view it
as a large risk. Even if we go to flat rates, we think we can live in that
environment, as well. We have a couple that have flat rates now.

For us, it's business as usual until something dramatic
happens. We don't view it as a huge risk," he went on to say.

A day before Sonic hosted its call, Byrd checked again with
the group's finance department to see if any of its 12 to 15 preferred lenders
made any changes. They, in fact, had not, according to Byrd.

Over at Lithia, senior vice president and CFO Chris Holzshu
indicated that only one lender that the group originated only about 10 contracts
with moved from a dealer-reserve method to a flat-fee schedule since the CFPB
began enforcement actions.

"I also want to point out that when you look at the
percentage of our deals that actually pay off of reserve, it's only about 50
percent of our transactions. Half of our transactions are already on a flat-fee
basis and so that remaining 50 percent, the rate spread we hold is about 75
basis points overall between both the flat and reserve," Holzshu said.

Meanwhile at Group 1, Peter Delongchamps, the company's vice
president of financial services and manufacturer relations, also mentioned
little procedure change if any by the group's lenders

"We've had very transparent and fluid discussions with all
of our major lenders. But at this point, there's been no appreciable change in
the way they're buying spreads or a flat-fee strategy," Delongchamps said.

Holzshu's assessment of the entire vehicle financing
landscape in connection to the CFPB might provide some clarity to the situation
for all dealerships and F&I managers.

"I think what we're seeing as the CFPB and the lenders are
digging into the transactions, they realize the real benefit the dealer
provides as the intermediary in the transaction is both good for the lender and
good for the customer," Holzshu said.

"I think what we're seeing is they're reinforcing the value
we provide on both sides of the equation," he continued. "The feedback I'm
getting is, especially from our preferred lenders which do about 75 percent of
our deals, they don't anticipate any changes coming down the pipeline.

"We don't anticipate seeing a big change in that moving
forward at this point in time," Holzshu concluded.

Nick Zulovich can be reached at nzulovich@subprimenews.com. Continue the conversation with SubPrime Auto Finance News on LinkedIn and Twitter.


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