Subprime Pullback Means Big Business for BHPH Dealers
HOUSTON — Many subprime lenders are tightening their business and trimming back on dealer relationships, which is a boon to buy-here, pay-here dealers as many customers who normally went the more traditional finance route are now being pushed into these stores.
"Subprime, if it's not dead, it's on life support," said BHPH dealer Ingram Walters, who co-hosted the recent National Alliance of BHPH Dealers' Underwriting and Collections Conference with Ken Shilson, founder of the group.
"It's like subprime has gone away. Thirty-eight people came into a relative's store (traditional dealer) and couldn't get financed," he explained to attendees. "Only two were approved."
So with this influx of customers, there are a few things Walters thinks BHPH dealers should keep in mind.
"Do we need to get away from weekly payments? Do we have to collect them differently? Maybe give a rate reduction?" he asked, saying that customers are used to paying lower APRs and paying differently with more traditional lenders.
Also, he indicated, "Gas prices are going to help our customers since they're now half price. We've survived (the) subprime (boom)."
Next to take the stage was Ron Brown, president and general manager of CSI Group, which is one of the oldest and largest asset investigation and recovery agencies in the Central Plains area.
In the past, a customer has normally had a hesitation to buy a used vehicle, Brown noted. However, he went on to say, "That is changing rapidly in your favor. Perception is reality. The prime lending groups are tightening up, which is a step in your favor.
"These customers used to be able to buy off a new-car lot, consequently, they are now looking at cars with higher mileage," he explained. "They have an image of what a collector is, an image of a repo man and the image of a used-car lot."
Dealers must keep in mind that perception is reality to customers, Brown highlighted.
For instance, Brown stressed the fact that dealers need to ensure they're working with good repossession agents or they can pay the price.
"I know of a financing company that chooses bad repo men," he said, offering the audience two worst-case scenarios.
One customer was chasing his car, which was being repossessed, yelling that he's current. He fell down dead of a heart attack, Brown reported. Turns out, the customer was current, he noted.
The other story involves a voluntary surrender. The customer just wanted his tool chest from the vehicle. While he was trying to stop the tow truck driver to get it, the driver ran over the man in front of his wife, children and co-workers. The man died.
"I've never seen a car worth dying for or for getting someone killed," Brown stated. "Every year recovery specialists get killed and customers get killed. One recovery wasn't done right and the customer came into the store (dealership) and killed three people."
Dealers need to look to see if the repossessor is part of a national organization, licensed and fully bonded, Brown said.
Additionally, he broke consumers down to three groups, indicating that these groups can offer indicators of how to best handle consumers depending on which category they fall into.
Traditional: 60-plus years old
Boomers: Born from about 1947 to 1962
X-Generation: Born from 1963 to 1980
Cyber babies: Born after 1980
Basically, Brown explained that for "boomers" honor and pride are big things.
"Other groups sometimes need consequences for non-payment," he noted.
"Are you a professional who knows what he is doing and will give the best deal to a customer under the circumstances?" Brown asked, pointing out again that perception is reality.
Tips he offered for success for collectors include:
– Be clear and concise
– Be organized
– Avoid time wasting traits
– Think results
Meanwhile, Paul DeSaulniers, of LexisNexis, also had some good advice for BHPH dealers. He discussed the alternative data that is available to help dealers make underwriting decisions.
Obviously, dealers need to assess a customer's stability, ability to repay and willingness to repay, he highlighted. Trade-line data, or data from credit bureaus, generally show a "real strong dose of someone's willingness to repay," DeSaulniers said.
However, what about customers who don't have a lot of credit history or none at all?
For these customers, dealers can look to products, such as Lexis Nexis's RiskView, which provide an analysis of public records, address stability, economic and lifestyle data, in addition to payment history for payday advances, according to DeSaulniers.
Basically, he indicated that there are 165 million consumers with traditional credit histories; however, there are about 40 to 70 million consumers who have thin files or no credit histories, which is where alternative data comes in.
LexisNexis' product can review public records for about 41 million consumers, including about 24 million with no credit bureau files and about 17 million with thin files.
"A large segment of the public that has no files actually look like those with full files (when it comes to alternative data)," DeSaulniers explained. "These tend to be folks with full licensures, doctors, hair dressers and the like.
"You're in the business of assessing someone's risk. I can place any risks, I just need to know what my loss ratio will be," he pointed out.
For instance, DeSaulniers noted that 11 percent of the population owns a property but has no credit score.
"You can see the size and value of the place they rent. Look at criminal convictions. Basically two convictions leads to a 70-percent loss rate.
For more information on LexisNexis' product, call (866) 858-7246.
Shilson and Rick Potter, president of CAR Financial Services, also addressed the audience, talking about some trends they've witnessed over the last few months.
"As early as February, I've seen more money down, shorter loan terms and more traditional BHPH business because their (credit-challenged customers) are losing financing," said Potter.
Meanwhile, Shilson noted that BHPH dealers need to be generating recency reports. "More and more lenders are focusing on recency," he noted. "If you're not generating recency reports, you should do that."
"If you're not using analytics today, you're going to have a hard time borrowing money tomorrow," Potter added.