Posted 5 years ago
By Nick Zulovich, Senior Editor
HOUSTON — Subprime Analytics founder Ken Shilson again
generated buy-here, pay-here industry benchmarks; metrics he said are even more
robust this year thanks to the merger of the National Independent Automobile
Dealers Association (NIADA) and the National Alliance of Buy-Here, Pay-Here
Dealers (NABD).
While the full report will be released during NIADA’s 72nd
annual Convention and Expo beginning on June 18 in Orlando, Fla., Shilson
shared some insights with BHPH Report regarding what he discovered after
analyzing the data that came from NIADA, NABD, Subprime Analytics, NCM
Associates and the accounting firm of Shilson, Goldberg, Cheung &
Associates.
“Without their contributions, we couldn’t have a
comprehensive look at what’s going on in the industry,” Shilson said.
What quickly percolated to the surface, according to
Shilson, is how much money has found its way into the deep subprime auto
finance space.
“It’s been very competitive in the subprime auto finance
business in the last 36 months. A lot of that competition has been fueled by
auto securitization money coming off of Wall Street,” Shilson said. “That has
made it difficult for the independent dealer to compete because that’s such big
money at low interest rates. The business model that’s being used in the
securitization market is quite different than what the independents are doing.
“Specifically, the auto bond securitization model is a much
newer vehicle at a higher cost, a much higher amount financed and a much longer
term than what the independents were willing to do,” he continued. “For those
independents that tried to move up the food chain, it wasn’t quite what was in
the securitization model, but a higher cost vehicle than they had historically
been selling, and they stretched terms but not nearly as much. None of those
results turned out to be favorable. That didn’t turn out to be a good decision
for anyone who did it.”
“In the deep subprime securitizations, those deals aren’t
working out well. Those losses are pretty high. It’s just too much vehicle for
too little customer,” Shilson went on to say. “For the independent dealer, no
matter how high up the used food chain they went, they can’t sell better than
new or certified pre-owned.”
Shilson acknowledged that some operators thought they had no
option but to try to sell vehicles as nearly new as their inventory funding
could supply. He gave an introduction into the specific metrics he will share
later.
“They increased the sales price and the amount financed,
thinking, ‘I’ll generate more revenue with less sales.’ But it doesn’t work
that way unless you collect it,” Shilson said. “A higher amount financed just
is not the recipe for success.”
Another phrase Shilson likes to reference during any
presentation is how “cash is king, especially in buy-here, pay-here.” Shilson
indicated that the latest benchmarks reinforced that line of thinking even
more.
“From an operator perspective, he’s having to focus on
becoming more cash efficient. Why? Because his money is costing him more with
interest rates increasing and some inflation. His cost of operation with
compliance and all of the other things is squeezing his profit margin just like
the competition is. He’s got all of those pressures working against him,”
Shilson said.
“From the customer standpoint, the quality of the customer
has been diluted from all of the competition over the last 36 months. These
consumers have many more choices than they ever had because there are so many
people in the business. (Operators are) seeing a lower quality customer, and
that customer is facing higher costs from both interest and living costs,” he
continued.
So when operators see the benchmarks, should they just throw
in the BHPH towel and go out of business? Shilson doesn’t believe that should
happen, offering this suggestion instead.
“It’s truly a time in this industry to gather as much as you
can from training and networking, 20 groups, trade publications, and assimilate
that all into your business. Then you have to rewrite your playbook. That’s the
theme of the June show,” Shilson said. “The old ways are not going to work
given the changes in the industry. Operators who want to be successful are
going to have to make the adjustments necessary to succeed in the current
environment.
“What that really means is they’re going to have to be a lot more proactive. They’re going to have use social media better. They’ll have to use advanced tax refunds to get the customer before their competition. They’ll have to operate more efficiently. They’re going to have to implement technology to get more from less,” he went on to say. “Capital is going to be very tight. You’re not going to be able to just borrow whatever your shortfall is.”