HANOVER, Md. — Jack Tracey remembers when the National
Automotive Finance Association's annual survey was the only barometer to
measure how the non-prime segment of the industry was behaving.

Now 16 years later, Tracey and the NAF Association are
gearing up to make positive changes to bring new life to its annual look at
lending to consumers with soft credit histories.

"For many years, non-prime, subprime — and I'm looking back
into the 1990s and the early part of this century — it wasn't as focused," said
Tracey, NAF Association's executive director. "There weren't as many players.
It wasn't as completely defined and identified as a market space. As it has
become so, the companies that serve the industry, the credit bureaus and
reporting agencies, they began to focus their resources on it so they produced
data that's segmented for that market. Early on, that wasn't being done.

"Our survey was serving as the only source for this
information," he maintained. "Now with the segmentation of the industry, the
identification of it as a particular market segment, we've got to come up with
information that now serves that industry that isn't necessarily isn't 60-day
delinquencies or volume numbers, because those kinds of things are just more
available in other places."

The 2012 survey released earlier this year had 21
participants, down from 28 a year earlier. Tracey highlighted this year's
survey pointed out:

—Collection effectiveness had improved.

—Credit risk appetite was expanding.

—Electronic processing was increasing.

—Funding availability was continuing to grow.

"It tracks the industry pretty well," Tracey reiterated
about the survey. "In boom times, (the non-prime industry) does well. In slower
times, delinquencies and losses and collection effectiveness and expenses all
increase. It sort of mirrors what everyone talks about as far as what's
happening in the industry.

"I think it's reflective of the industry. If there has been
anything that's been consistent, it's been that. That's not surprising because
the industry is feeding us the information we're using," he continued.

The NAF Association is organizing a committee to meet this
fall that will reevaluate the survey process in hopes of making the data
collection even more valuable.

"We think some of the information we're gathering is just as
readily available from some of the credit bureaus and data gathering services
that are out there, and people don't need to complete a survey to be able to
find out what it is because they can get the information the survey was
providing them through Experian or TransUnion or something like that. We maybe
need to monitor and question other things," Tracey acknowledged.

"We're going to go look at the association's survey this
year very critically," he pledged. "We'll probably keep some of the major
elements but probably come up with a new series for a significant part of the
survey that are different that the industry feels they would like to know but
that information is not available from another source.

"The next survey will probably be significantly different
than the previous ones. We think we want to be capturing information that the
industry can't get from other sources," Tracey went on to say.

No matter what survey changes might be ahead, Tracey
contends what the NAF Association reveals during next year's convention and
discusses throughout 2013 will be a point of reference for the entire industry
as it has been for more than a decade.

"We have been doing it since 1996. We began it. We're
certainly the source of the longest-term data. The association continues to be
very prideful of what we've done here," Tracey emphasized. "We hope the
modifications to the survey that we're thinking about doing will continue to be
popular. There are some companies that have been with us for 16 years and have
reported data.

"We'd like to get as many people contributing to the survey
as we possible," he continued. "If we capture different information and the
potential participants view it as something that's relevant and won't be able
to get otherwise, we'll increase participation. That's our objective each year.
When we get under 25 participants, we feel like we want to do better than
that."

Tracey went on to mention that when larger lenders such as
Capital One began to make loans to non-prime borrowers, the market changed
significantly.

"When major players got into the industry seven, eight, nine
years ago, it grew because they were in it," Tracey said. "New players that are
coming in, entrepreneurs who are entering this business, tend to enter this
space because if they do it right, the returns are good. There's considerably
more sophistication in underwriting with credit scoring and whatnot that will allow
someone to pretty much predict how a portfolio is going to behave as they build
it. With the higher rates they're able to get to cover their risk and if they
can mitigate the risk with good underwriting, it's a profitable place to be.
The big guys are in there because it's profitable, and the new start-ups tend
to go there for the same reason.

"I would say it's the evolution of the market and the
sophistication of the underwriting and collection procedures that allow people
to get into this space and make money," he concluded.

Editor's Note: For more details of the NAF Association's
most recent survey, review the September/October print edition of SubPrime Auto
Finance News.