This year brings new economic challenges for BHPH dealers including higher inflation that reduces subprime customers liquidity, expensive inventory acquisition and operating costs, and a higher cost of capital.  These challenges and others all reduce profit margins and cash flow absent some underwriting changes.

 

            I just finished compiling the latest industry subprime portfolio performance benchmarks and noted 1) rising delinquencies, 2) increased bad debt charge offs, and 3) lower net profit margins.

 

            Some dealers increased vehicle sales prices and corresponding amounts financed in an attempt to offset the increased inventory and operating costs.  Installment contract term lengths were lengthened by an average of 5 months to make customer repayments “appear affordable”.  Unfortunately, such changes only work when your subprime customers continue to make their payments.  The latest benchmark results indicate this is not happening in many cases because subprime customers have more limited liquidity and can’t afford the sales price increases.  Originations during the COVID-19 Pandemic are difficult to refinance because of increased negative equity in these deals.

 

            Therefore, prudent operators should reevaluate their current business models by doing the following:

 

1)      Analyze their own portfolio data to determine what is working best in their market and what is not working at all!

 

2)      Compare their business model and portfolio performance metrics with successful industry peers and other competitors.

 

3)      Make the necessary underwriting adjustments before they exhaust their available capital.  Successful dealer/operators would not buy vehicles at auction without “looking under the hood”.  Therefore, operators they are advised to do the same with their subprime portfolios!

 

Subprime Analytics can electronically analyze subprime portfolios in an efficient and cost-effective manner and compare your results with industry peers.  Call Ken Shilson at 281-723-9508 for a no-obligation consultation.  Visit www.subanalytics.com for more information.  We will show you the money!

	Learn From Your Losses, Don’t Repeat Them!

 

Sincerely,

             

Ken Shilson

President, Subprime Analytics

ken@kenshilson.com