Well, as we close out 1999, I thought we might examine and consider the direction the industry might move in the year 2000. What might happen is anyone's idea, but let's take the time to examine and consider some current trends.
1999 has been a year of continued consolidation in the sub-prime sector. This year we observed a few players exiting the market. Also the difficulty in obtaining funds necessary for lenders to continue operations seems to be as much an obstacle as ever. Lenders seem to be tightening the credit reigns as much as ever in an effort to reduce and impact the loss curve. So where is all this headed?
My prediction is for at least one more leading sub-prime lender to shake out during 2000. The big question is, who will this be and what impact will it have on the market? I will not point any fingers but you might examine public companies where insiders seem to be selling at an alarming rate with no insider purchases. This sure says a great deal about management's confidence in the next 12 to 18 months. If a major lender goes down, look for the aftermath to be like a 7.0 on the Richter scale-fairly sizable with wide reaching impact.
If this happens, I am fairly concerned on what it will do to the industry as a whole. Perhaps dealers have become numb to the bankruptcy or exiting of sub-prime lenders because of the recent frequency of these occurrences. But if one of the last few highly regarded players stumbles or trips, I believe it will change the face of the whole industry.
Also watch for some of the new Internet players to enter the market. Companies which are Internet based may have access to a whole new round of capital. Let's watch and see how they utilize the capital and what they have learned. Look for one of these Internet companies to perfect the financing of the private sale transaction-consumer selling to consumer. Think about what impact that might have on the auto finance industry; 50% of all used vehicle sales are private transactions?
It appears that there is an increasing trend among true "D" lenders to sue dealers in an attempt to minimize losses once dealers stop doing business with that lender. Depending on what happens, watch for that entire niche to dry up. Now, before the lenders get excited, I am not suggesting they are headed out of business. What I am saying is that dealers will become so skeptical of dealing with the entire "D" segment that they will look to other alternatives. I believe this will fuel the growth of the dealer controlled finance or buy-here pay- here business. Dealers will again realize they are better off when they can afford to be in the driver seat, recognizing all of the profits and controlling their own destiny.
I don't know if these predictions will all come true but stash this article away and revisit it in December 2000 and give me a call.