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BANDON, Ore. — The finance office stayed busy in July
working up contracts for used vehicles as CNW Research determined 68.9 percent
of all used sales last month included financing, a rise of 11.4 percent
year-over-year.

Of the 4.58 million used sales in July, the number of
subprime buyers jumped 12.8 percent on a year-over-year basis and 2.9 percent
compared to June, according to CNW.

The deepest of subprime buyers — customers with FICO scores
below 550 — also increased by double digits year-over-year. CNW indicated the
amount of used-vehicle buyers in this category jumped 25.4 percent to 618,260
purchasers.

While that deep subprime pool is in the crosshairs for
buy-here, pay-here dealers, CNW discovered sales in July for this segment
slipped 9.3 percent versus a year ago. President Art Spinella told SubPrime
Auto Finance News why.

"What we're seeing is that the conventional finance
institutions — banks, credit unions and the military credit unions — are all
going a little deeper in terms of who they will accept. In large measure, that
will keep a lot of people out of the buy-here, pay-here lot," Spinella said.

"(Buyers) can go to an independent dealer or a franchise
dealer or even private party and get a loan that a year ago would have
definitely gone to the buy-here, pay-here lot," he continued. "And they can get
a loan from a conventional used-car operation as opposed to buy-here, pay-here."

Beyond other finance companies buying paper much lower in
the credit spectrum, Spinella spotted another reason why BHPH dealers might
have struggled to move metal last month.

"The other part is there are regulations that are kicking in
that are at least point dampening buy-here, pay-here to some minor degree.
We've seen a number of buy-here, pay-here operations cut way back because of
those regulations, especially in California," Spinella said.

Could BHPH regulations in the Golden State spread elsewhere
and start to influence BHPH sales in other parts of the country?

"I think it will eventually wind up being an influence
across the country, but I think the buy-here, pay-here operations are pretty
savvy," Spinella said. "They find ways of dealing with it, and there's always a
market. As long as there's a market, there will be ways to get to work within
the guidelines of the regulations.

"Not too concerned in the medium term. But in the short
term, it might be that buy-here, pay-here takes a slight hit over the next year
or so," he added.

Pre-Approvals Trending Lower

Elsewhere in the financing of used vehicles, CNW found that
the number of pre-approved loans in July slipped 12.5 percent compared to year
ago data but rose 4.6 percent compared to June of this year.

Spinella explained the pre-approval movement is due to
plenty of financing promotions both franchised and independent dealerships are
pushing nowadays. He also pointed toward a shopping shift that influencing how
buyers are securing their financing.

"Consumers are looking for very specific vehicles again, or
at least starting to," Spinella said. "During the recession, they were looking
for anything with wheels that could get them through a particular time or
replace a particular vehicle that wasn't really suitable for whatever their
driving needs were. They were more willing to make a purchase of a vehicle they
weren't really crazy about but needed. What we're seeing now is consumers are
going back to looking for a specific vehicle."

So instead of settling for a blue Chrysler minivan, Spinella
explained potential buyers looking for the exact red Chrysler minivan they want.
In light of this example, he went on to explain why that preference is pushing
purchasers away from the pre-approval path.

"When you do that, having a pre-approved loan isn't
necessarily going to help you much because you're going to be looking at
multiple places," Spinella said. "Most places now have such good financing
opportunities. There isn't anybody who can't place a loan for all intents and
purposes regardless of your credit rating. There's no real reason to get a
pre-approval to see if you qualify. That's really the only thing people do with
a pre-approved loan is to see how much the bank is willing to let them buy and
to see if they have a credit score that's going to let them make that purchase.

"As things get looser, we always see pre-approvals kind of
soften," he added. "That's really what's going on. We expect to see
pre-approvals actually start to fall off over the course of the next six or
eight months."

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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