GAINESVILLE, Ga. — Industry conferences as well as client visits and calls
filled Jeff Bunch's calendar for much of the past several weeks. The vice president
of Black Book Lender Solutions shared some details of what lenders are seeking
nowadays in light of rising contract terms and inflating loan-to-value ratios.

Bunch told SubPrime Auto Finance News this week that "a lot
of the questions we've received over the last couple of weeks have involved as (lenders)
have gone to longer terms, they're looking for data that's different, something
that can really be set apart so they can have a good idea of how aggressive
they want to be."

Experian Automotive's second quarter data showed how aggressive
lenders are becoming, especially in the subprime space.

Contract lengths on used-vehicle sales rose to 60.64 months
for subprime contracts and to 55.53 months on deep subprime notes in the second
quarter.

For LTVs during Q2 on used-vehicle contracts, the amount
climbed 539 basis points year-over-year on subprime deals to 140.4 percent and
431 basis points year-over-year on deep subprime notes to 147.4 percent.

"In talking with lenders, they're interested in knowing
where they should go if they're going to these extended terms and going to go a
higher LTV and what segments really jump out as good opportunities to keep our
risk at a low level and still grow the business. They still want to grow. They just
want to grow the right way," Bunch said.

In replying to these inquiries, Bunch reiterated many points
Black Book articulated in a white paper the company released earlier this year.
The analysis showed how much better at retaining value some specific vehicle
segments are, including trucks, midsize cars and compact crossovers as opposed
to other vehicle segments such as compact cars and luxury sedans.

"One of the things we want to highlight is as this
fluctuation in retention comes along with the supply coming back, it's
important to know for the collateral piece of it where you're at in the
lifecycle of the car. Not every vehicle depreciates with the same percentages,"
Bunch said.

"You could have a car that in the first two years
depreciates at very low rate but then all of sudden accelerates dramatically in
year three," he continued. "Then a similar car could depreciate very rapidly in
the first two years and then stabilize from three years on.

"As you're in the that cycle, if you're financing a
four-year old car, it's very important to know where you're at and if that car
has taken the majority of its depreciation already or are you heading into the
period where it's starting to lose its retention value at a greater pace,"
Bunch went on to say.

Refining that strategy apparently is resonating with lending
institutions.

"There's more and more banks looking at residual forecasting
in their organization and risk management of their portfolio to see what this
car is going to be worth in two years, three years and four years so they can
structure their loan appropriately whether it be term, LTV and how aggressive
do they want to be in that particular area," Bunch said.

And that portfolio analysis also appears to be ramping up as
2013 draws to a close.

"As we move into this time, times are pretty good," Bunch
said. "The market is going right along. There's a lot of opportunity for a lot
of lenders knowing exactly what you're risk is and what are some opportunities.

"There's a lot of people who are concerned and looking to
making sure by using some of tools we provide that they're able to manage their
collateral as well as their customer base to know what their risk is, where
they have opportunities and where they can grow and where they need to be specially
cognizant of possible risk," he continued.

"We've had a couple of years where retention values have
been as high as I can remember. As we go into the next stage where they start
to soften a little bit, there are a lot of people who see it coming and they're
very interested in monitoring their whole pool of collateral to see where it
stands," Bunch concluded.

Editor's Note: Black Book's latest white paper on vehicle
retention can be downloaded here.

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


Normal
0
false
false
false
EN-US
X-NONE
X-NONE

/* Style Definitions */
table.MsoNormalTable
{mso-style-name:”Table Normal”;
mso-tstyle-rowband-size:0;
mso-tstyle-colband-size:0;
mso-style-noshow:yes;
mso-style-priority:99;
mso-style-qformat:yes;
mso-style-parent:””;
mso-padding-alt:0in 5.4pt 0in 5.4pt;
mso-para-margin-top:0in;
mso-para-margin-right:0in;
mso-para-margin-bottom:10.0pt;
mso-para-margin-left:0in;
line-height:115%;
mso-pagination:widow-orphan;
font-size:11.0pt;
font-family:”Calibri”,”sans-serif”;
mso-ascii-font-family:Calibri;
mso-ascii-theme-font:minor-latin;
mso-fareast-font-family:”Times New Roman”;
mso-fareast-theme-font:minor-fareast;
mso-hansi-font-family:Calibri;
mso-hansi-theme-font:minor-latin;}