The first quarter of 1999 has continued in the footsteps of 1998. We have observed a number of sub-prime companies who have either tightened lending parameters, or have serious "blips" in their operations. Without naming names, I have heard a few rumblings about companies who might have potential problems this year. So the message continues to be KNOW YOUR LENDER.
We have observed a trend of alternative finance lenders modifying their dealer agreements. Obviously, these modifications are seldom in the dealership's best interest. As a result, we see more and more dealers, or controllers, with questions regarding how to evaluate these agreements. There is now an industry manual addressing these and many other legal and business issues facing dealers operating in the sub-prime finance business. For information on how to obtain this manual, send an email request to ldf@ncm20.com.
It appears our first quarter volume numbers are off slightly. More and more of the customer base is being captured by the well-heeled buy-here, pay-here operator. As sub-prime companies continue to tighten credit guidelines, applicants who have been turned down are returning to the buy-here, pay-here segment of the market. Many of these dealers are experiencing record growth rates. Look for this trend to continue.
It will be interesting to see how the recent resolution of the taxation of reserves issue will impact dealers in the true D end of the market. Some are predicting no dramatic increase in dealers offering these programs. At any rate, R.B. Grisham of NIADA and Keith Whann deserve a round of applause for accomplishing what many viewed as impossible. Dealers will now not have to pay tax on the "phantom income" represented by companies withholding heavy reserves (i.e., CAC and Universal).
The dates for this year's National Conference of Special Finance has been announced. This event, the largest industry trade show, will be held in Las Vegas on September 12-14, 1999. This publication has provided coverage of this event in the past, so look for more information, as well as follow-up after the event, in future issues.
It might be beneficial to report on a few of our 1998 operating guidelines for special finance department operations: our dealers averaged $2,237 of front end profit and $513 of F&I income per retail vehicle sold during 1998. These averages were developed from over 300 franchised stores reporting data regarding their special finance departments. We believe these averages will hold constant for 1999, barring any radical shift in advance formulas.
In closing, try this exercise: Examine the time it took to fund each sub-prime contract during the past three months. Start the clock based on the contracting date and continue through the date the deal was funded. Determine your percentage of deals where the funding date was over 10 days after the contracting date. If your percentage is in excess of 25%, you may have a compliance problem.
Until next time--Good Luck!
Christopher M. Leedom is a Professional Twenty Group Moderator with NCM Associates of Overland Park, Kansas. He is a recognized industry expert on sub-prime finance and is the Chairman of the National Conference of Special Finance '99. If you have specific questions or require more information about this subject, please check the appropriate box on the reader response form on page 3. cleedom@dealeronline.com