September 2011, Auto Dealer Today - WebXclusive
Every few years, I attend an industry conference besides our own, and I come back really excited. Fortunately, the National Auto Finance Association’s recent conference held in June in Fort Worth, Texas, was one of those. More importantly, I heard all good news for the special finance industry, which is near and dear to my heart. Well, maybe not all good news, but enough to make up for the not-so-good news.
This is an event I attend every year, as it is one of the few places where I can find the absolute upper-echelon of the brain trusts operating the most important banks and finance companies serving the non-prime (and even prime) auto finance industry. No other venue provides me the opportunity to connect with these influencers of the finance industry, which helps me stay abreast with where it is going. I am always amazed that so few dealers take advantage of the opportunity as well.
The Good News
Every significant player in the SF industry was present, as were many of the strong regional and niche companies. The good news flowed out of meetings with executives such as Kevin Borgmann and Steve Braskamp of Capital One Auto Finance; Mike Kane of Ally Financial; Kyle Burch and Paul Gillespie of GM Financial/AmeriCredit; Bill Jones of Regional Acceptance; and Mark Floyd of Exeter. Additionally, it felt like a homecoming seeing former Westlake presidents Jim Vagim and Bruce Newmark, who traveled to Indiana over a decade ago to pitch me on becoming a beta-test dealer when they were just beginning to expand nationally; they are now the presidents of United Auto Credit and Mark One Financial, respectively. Finally, three different execs from other companies told me what a great job they thought Tom Dundon, CEO of Santander, was doing.
Unfortunately, in order to get the scoop on where the industry and companies are heading, I can never divulge the specifics of these conversations unless they are stated in front of other attendees as well. I have also learned that to skip the panel discussions and wait for the one-on-one time if I want the meat and potatoes. What I can tell you is, every leader of every company was optimistic, projecting controlled but significant growth, and they all feel they have the perspective to significantly delay the next and inevitable market downswing. That means good things for all dealers in the subprime credit world (at least for approvals and advances).
I also had reaffirmed to me that if you want the true SF industry bellwether, watch the unemployment numbers closely. As more people lose their jobs, collections become more difficult, and credit tightens. As people return to work, the reverse happens—something any BHPH dealer can tell you by their own collections.
I talked with some officials about the easing of credit. Certainly everyone recognizes it has occurred while advances have grown over the recent nine months, but I have been assured that credit policies are not becoming a runaway train. An exec from one of the significant companies explained to me that while the score they internally assign to credit risks has increased over the past six months, it is only up about 5 percent; it is still down 20 percent compared to what it was at their peak in 2006. This is a company that is very competitive in today’s market, which indicates to me that we are a long way from reckless, which is a good thing.
I also learned that while the market has shifted to where the Big 6 (Capital One Auto Finance, Chase, GM Financial/AmeriCredit, Santander, Wells Fargo and Ally Financial) have almost 75 percent of the market, there is still plenty of opportunity for smaller-sized regional companies. I was excited to catch up with Vagim, whom I had not seen in years. He explained to me the trials and tribulations of United Auto Credit, a company that not that long ago had a significant presence in the SF market. Then, the downturn hit, the company lost all of its liquidity, and he was brought in to first save it and then resurrect it. It appears he has accomplished the feat with new and significant credit lines, and the company is once again underwriting in 36 states.
The Not-So-Good News
The yin and yang of the conference was the continuous undercurrent of the impending commencement of the Consumer Financial Protection Bureau’s (CFPB) enforcement powers. This much-discussed provision of the Dodd-Frank Act comes to life on July 21, 2011. Currently without a leader, although it has long been rumored that Elizabeth Warren would be nominated to the post, it is set to receive over $50M in funding to hire likely 1,200 people to begin wielding an awfully big club.
Thanks to the NADA’s strong lobbying efforts, franchise dealers escaped direct scrutiny of the bureau. Unfortunately, that wasn’t the case for the overwhelming share of independent dealers, who can only escape scrutiny if they have a service department and do not do any BHPH. Regardless, while even if they don’t have to worry about having to deal with a CFPB exam (for now), all the banks and finance companies they do business with will have to, and you can bet it all rolls downhill. I was listening in on a discussion between two major auto finance company officials comparing their legal and compliance staffs and expenses. It is staggering.
After hours of hearing the potential horrors of the CFPB, during the panel discussion, a reporter from another publication asked the panel if dealer fraud (always a hot topic in prior years) was no longer a factor in auto finance. The crowd chuckled, and he was reassured by the panel that yes indeed, it still was an issue. However, the fact that the question was asked within an hour of the end of the two-day conference shows how significant the concern about the CFPB was.
My best advice is to remember the names Hudson and Cook, and watch and listen to their firm’s advice, along with your state and national associations. Do not bury your head in the sand on this topic. By the time your name is called, it will be too late, and it could be an expensive and difficult lesson to learn.
First, no doubt due to increased sales and liquidity in the markets, there was increased attendance and an energy that hasn’t been present at the NAF Conference in perhaps four years. Congratulations to the executive director, Jack Tracy, and his wife, Mary Ellen, on a great show. If you are a dealer, you need to put this on your calendar next year.
Second, I commented one year ago after leaving the same conference that the SF business was on its way back. Not only is it back, it is back with a vengeance. Unfortunately, the skill sets at the dealer level aren’t yet back. I listened to a number of the large bank and finance company officials lament that among their biggest challenges are incompetent dealership personnel. It takes a lot to leave me speechless, but one of these same companies did just that when they told me over 8 percent of the contracts they receive aren’t even signed! Simply astounding. If you aren’t yet, get in the game, but learn the rules.
Third, barring a catastrophe on U.S. soil, I feel that the major players in the auto finance industry have not only learned from this last disaster but are operating on a growth curve that is responsible and attainable. My feeling is that we are not heading for an imminent downturn some time within in the next three years. Certainly the economy is not out of the woods, and as mentioned before, the unemployment numbers will likely tell the tale, but all in all, I don’t see the pendulum swinging back any time soon. For those of us in the special finance business, that is the best knowledge we can walk away with!
Until next month,
Vol. 8, Issue 7