Subprime Execs Emphasize the Importance of Recon in Driving Wholesale Prices
SAN DIEGO — Subprime retail sales will continue to increase in the coming years, and the inevitable result — a rise in repossessions — will fuel growth in the subprime wholesale market, agreed a panel of subprime lenders at the National Remarketing Conference held in San Diego Nov. 1-3.
The panel — which consisted of Randy Mayer, vice president of asset recovery and remarketing for Huntington Bank; Jim Chapman, national remarketing manager for Credit Acceptance Corp., Vehicle Remarketing Services; and Neil Boardman, assistant vice president of recovery and remarketing for Regional Acceptance Corp – concurred that a critical element of their success in this growing market will be consistent condition reports, particularly as more sales shift to the Internet.
"Three different guys can analyze the same car, and you get three different condition reports. I think you just have to set a standard," Mayer said.
Inaccurate condition reports cost lenders money, and increased standardization would improve accuracy and make lenders' decision-making process easier, the panelists said. Standardized condition reports would also facilitate online sales because they would increase remote buyers' confidence in what they're buying.
Chapman also pointed out that Credit Acceptance is establishing benchmarks for evaluating a car's condition, helping his company to compare the performance of different auctions in an effort to correct discrepancies.
"It's so we know we're measuring auction A and auction B with the same tool," Chapman said.
The importance of condition reports has led to the evolution of the condition-report writer from an entry-level job to one of the most important — and hardest to fill — positions in the subprime field, the panelists said.
"We rely a lot on the auctions providing us a detailed condition report," Boardman said. If a car's condition is not properly documented, "it takes a lot of time to go back and try and make the adjustments to find out exactly what the value is," he explained to conference attendees.
Regardless of a car's condition — which, in the subprime market, is often poor to downright bad — reconditioning almost always pays off, the panelists agreed.
"If you can improve the car, recondition it, you're going to get better money in the lanes," Chapman said. "We've taken steps to quantify that internally. … We feel if we're making the right decisions on repairs, for every dollar in, we should be getting two dollars back."
The panel members said auctions have leeway to make routine repairs — such as replacing a battery or tires.
"Spending $50 to $100 to get something simple fixed is a no-brainer because the value will come back," Chapman said.
However, allowing auctions to make decisions about further reconditioning depends upon the lender's trust in an auction's ability to determine which repairs make financial sense, according to the panelists.
Another topic of discussion for the NRC subprime panel was the use of third-party companies to represent lenders at auctions.
"We probably use two or three different outside remarketing companies," Boardman noted. "We started with them basically in areas where we only had a handful of cars. We wanted their brand recognition at the sales they were going to. We also didn't want to pay for our reps to fly across the country to buy a car.
"For areas where you don't have a lot of cars … they do a great job of providing the service that we feel we couldn't afford to do," he added.
Conference calls and occasional audits allow Regional Acceptance to monitor their representatives, Boardman continued.
"With outside vendors, you just need to follow up," he said. "You need to make sure your reporting is clear and concise. You're not there to view the vehicles firsthand."
Regarding the effect of the Internet on wholesale subprime sales, the panelists said they see fervent bidding even online. The emotional factor is still there, and dealers hundreds of miles apart will get into heated bidding wars, the group of executives explained to NRC attendees.
While bidding activity is strong online, so too are bids at physical auctions, and the panelists said they don't see the brick and mortar auctions going anywhere, any time soon. They are simply just too important a component of business.
However, Mayer said online auctions "open up a wider window of possible bidders" and appeal to bidders who want to stay in their office or bid on vehicles at multiple auctions. But he said online sales haven't cut into the action at brick-and-mortar auctions.
"I don't necessarily look out and say that I think it's had a significant impact on the number of people we see in the lanes," he concluded.