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IRVINE, Calif. — Robert Riedl remembers the days both when
Consumer Portfolio Services bought more than $100 million worth of new paper
monthly during the subprime heyday as well as when the company took in less
than $3 million during an entire stretch of three consecutive quarters.

Now with funding available and a campaign to tell dealers
about its reinvigorated commitment, CPS is out to show why it's been a
successful independent specialty finance company for more than 20 years.

"It was a tough road, but we've definitely turned the corner
on a variety of fronts, profitability and growing our managed portfolio,"
Reidl, the senior vice president and chief investment officer of CPS, told
SubPrime Auto Finance News during a phone interview this week.

"As we sit here today, we feel pretty good about what we've
been through and where we're going," he added.

Surviving the Great Recession

Riedl acknowledged that early in 2007, "the winds of change
were upon us." The CPS executive, who has been with the company since 2003 and
in the finance and investment banking industry since 1995, feared what was
going on within subprime mortgages was going to affect auto lenders.

"You'd hear the ads on the radio about subprime credit,
subprime mortgage, low docs, no docs. We were kind of scratching our heads a
little bit saying that doesn't sound like a very good idea to us," Riedl
recollected.

"We obviously played in the subprime slice of the credit
spectrum from the company's get-go over 20 years ago," he continued. "One of
the things we've always done has been pretty thorough on verifications in terms
of verifying employment, verifying income. To hear the mortgage guys saying, ‘It
doesn't matter what your FICO is, we're not going to verify,' by early 2007 it
all really started to come home."

In 2008, CPS like so many other lenders watched their access
to funding from capital markets disappear as credit nearly hit a standstill.
During the previous four years, Riedl calculated that CPS' total managed
portfolio reached $2.2 billion as the company was buying more than $1.2 billion
in loans annually.

"We had to hunker down and prepare for the worst and live
through it, which we did," Riedl shared as CPS went from $100 million coming on
the books per month to less than $1 million by December 2008 because the
company lost access to its short-term credit facility and investment banks
refused to extend other lines.

CPS cut staff, dropping from more than 1,000 employees to
about 400. The company posted losses from the third quarter of 2008 through the
third quarter of 2011.

"It was tough sledding. Our financial statements were hit
pretty hard," Riedl conceded.

And dealers associated with CPS felt the brunt of the
situation, too. Riedl estimated the company had active relationships where CPS
accepted loan applications from about 9,000 dealers in 2007. A year later, that
figure shrunk to 200.

"Obviously dealers are savvy businessmen and women. They
keep in tune with what's going on in the world," Riedl surmised. "We were not
alone in our struggles. Certainly some of the bigger players were able to
weather the storm better than we did. But as we shrank, we obviously had to
tell a lot of our dealer customers that we had lost access to most of our
funding and we were just not able to buy many loans. It was not based on
anything they did, but rather our outlook on the amount of funding we were
going to be able to access.

"There were grumblings at the time, but you could understand
a bit by reading the newspaper and all of the various things were happening,"
he went on to say. "Dealers weren't happy about it, but they had a bigger-picture
perspective. This was a global thing happening, not just at CPS."

On the Road to Recovery

As the industry prepares for the second half of 2012, CPS is
much more upbeat about its current situation compared to the doldrums of three
years ago.

Riedl indicated CPS has about $200 million in warehouse
credit capacity and just completed its fifth securitization in the last 15
months. The company is buying $45 to $50 million in new paper monthly.

The marketing staff is growing, pushing CPS' new "Hit Your
Numbers" campaign. The staff that dwindled down to as small as 20 individuals
could be back up to about 60 representatives within the next 90 days.

Riedl noted a commitment to reach more independent stores.
He projected that about 90 percent of CPS' previous dealer relationships were
with franchised stores. Now, about 75 percent of those relationships are with
franchised stores with more independent dealerships coming on board.

"About a year ago, we started hiring sales reps to go into
dealerships to explain programs build a relationship with the F&I guy,"
Riedl explained. "We feel independent dealers are less served in the market."

Riedl highlighted a few ways CPS is trying to gain
originations and build up its total portfolio.

"We've spent a good amount of time improving the service we
give to the dealer," he began. "When we send out our payment call approvals,
when they call in to talk about a structure, we've got somebody there who is
going to pick up the phone and work through the details of that structure.

"We've spent a good amount of time with our marketing reps
that as soon as that approval goes out, they try to get in touch with dealer as
well to go through any nuances," Riedl continued. "We've put together some
selective price cuts in order to try to look at the contracts we think will
perform better and reduce the price on that.

"We think we're flexible. We're willing to listen to the
strengths of an application. If the dealer thinks there are overriding
strengths, we'll certainly listen. Ultimately, we're trying to convert more
guys," he went on to say.

With the biggest obstacle to growing its business — access
to capital — no longer an issue, Riedel reiterated to SubPrime Auto Finance
News about how CPS is poised to be a specialty finance company dealers can use
to serve a growing number of subprime buyers.

"Clearly the last five years have probably created a broader
market of what can be considered subprime given the difficulties on
unemployment and the mortgage mess," Riedl projected.

"Back five years ago, we estimated that the subprime piece
of the entire auto credit market was maybe 20 to 25 percent. It definitely has
expanded," he continued.

"The flip side of that is there are a number of new players
who have come into the industry over the course of the last couple of years as
they see a bigger market given the struggles that a lot of folks have faced on
the credit side," Riedl added. "But we feel good about where we're positioned.
We've been around for over 20 years. We've seen, experienced and lived through
a couple of the down cycles. It is back to being a competitive marketplace, but
we've got some tools that will allow us to compete."

Editor's Note: How has your lending operation or dealership
navigated through the recession and geared up to take on new business? SubPrime
Auto Finance News wants to share your stories. Please contact Nick Zulovich at nzulovich@subprimenews.com with
the details.