Keeping Them Sold - Part 1

by 1 year ago

“Keeping Them Sold” in Subprime Auto Finance – Part 1

By Kenneth Shilson

President, Subprime Analytics

At Subprime Analytics, we measure success in Subprime Auto Finance by “keeping vehicles sold” and subprime finance customers paying over the term of each contract. Some operators measure performance strictly on how many vehicles they sell each month, and not on collection performance metrics like static pool, loss/liquidation, and default rates. I liken this to “flying an airplane without an instrument panel” or buying a vehicle at auction without “looking under the hood” as an analogy.

            This will be the first of five articles which will follow weekly on what keeps subprime customers paying and the ways you can increase cash flow and get the capital needed to grow your subprime auto finance portfolio.

            The last three years (2015-2017) have been the most competitive in history for the subprime auto finance market. This fierce competition resulted in some very aggressive underwriting which has translated into more defaults. Total outstanding automotive receivables now exceed $1.1 trillion at March 31, 2018, according to Experian. This makes auto financing the second largest consumer market, only exceeded by student loans. The outstanding BHPH subprime receivables are estimated to be approximately 6.4% of the total, or approximately $80 billion! The unprecedented growth during the last three years has been “fueled” by cheap money from auto bond securitizations issued by Wall Street. The percentage of subprime auto loan securitizations considered deep subprime (consumers with 550 credit scores and below) rose to 32.5% in 2017 – up from only 5% in 2010. This represents an increase of more than 600%! The risk associated with these securitizations was passed to investors who were seeking higher returns on their investments. This may turn out to be “fool’s gold” on many of these deals.

            The poor performance and loan losses from many of these deep subprime securitizations have forced banks and private equity sources to shut down funding for an increasing number of smaller subprime vehicle lenders, as they shift funding emphasis to prime and near prime customers. That lack of funding is causing many subprime lenders to close up shop and has caused a credit tightening. This tighter credit availability will reduce competition in subprime auto finance and create an opportunity for independent dealers and their related finance companies to regain market share lost during the last three years.

            For the last 20 years, Subprime Analytics, along with other contributors, has prepared and published BHPH (subprime) benchmarks relating to independent operators.

            It is important to compare the business models from the independent operators’ benchmarks with the subprime models funded by the auto bond securitizations. The table below shows the important differences between them:



Business Model


2017 Deep Subprime per Experian

2017 Independent BHPH Benchmarks







Amount Financed





Used Loan Term

55 Months

44 Months

11 Months


Used Monthly Payment





Average Finance Rate






            Understanding the differences in underwriting, and their impact on collections and recoveries, risk, and cash flow is what we must learn from the deep subprime securitization losses. In my articles, which will follow over the next several weeks, I will explain each of the above in more detail so these mistakes are not repeated.

            A complete copy of the 2017 benchmarks can be obtained by emailing me a request to

            At the NIADA/NABD Expo on June 19 in Orlando, I will discuss the subprime market changes, what we learned from them, and what’s ahead in 2018 and beyond. Hope you will attend!


Learn From Past Mistakes, Don’t Repeat Them!

Kenneth Shilson is President of Subprime Analytics (  which provides computerized subprime auto portfolio analysis using proprietary data mining technology. To date, the company has analyzed over 2 million subprime auto deals aggregating $20 billion. The company provides portfolio analysis, profit and cash flow enhancement and other consulting services to operators and capital providers nationwide. Mr. Shilson is the President and Founder of NABD, which merged with NIADA on Jan. 1, 2018.