Last year new car sales reached 15.45 million units while used car sales reached 45.25 million from franchised and independent automobile dealers; 1999 sales look to be even stronger than 1998 sales. Furthermore, the number of buyers who have impaired credit has been reported as high as 40% of the general public and is growing rapidly. With over 70% finance penetration, the number of sub prime loans is projected to grow to over $100 billion annually. This market has become so large that dealers are realizing they can no longer separate this market from the conventional financing market.
We have seen captive lenders like Ford Motor Credit (Airline), General Motors (Nuvell), General Electric, and Bank One become more aggressive in financing sub prime customers while sub prime lenders like Americredit, Household, Arcadia and Onyx have developed programs that are much more aggressive with conventional customers than many of the captive lenders. We will see this continue until it reaches a point where there will not be any separate sub prime programs and conventional programs, just programs that cover A to C credit. Thus, F&I departments will have to see every customer as an individual, not every individual as a customer. This means finance departments must include a wider range of financing to offer the most competitive terms and rates based on each individual's needs. Each customer will be different in his or her own way. Some will want the lowest rate, some will want the biggest advance (to roll negative equity or to put less money down), while some will want longer terms or balloon payments to reach a desired payment.
Sub prime lenders have also recognized that there is a growing number of conventional ("A & B credit") buyers who are seeking out sub-prime financing such as higher advances, longer terms, flexible debt ratios, and flexible terms on older or higher mileage cars. I help dealers every day increase their business as much as 20% by understanding all the various programs on the market that can allow them to make deals by offering terms, rates and conditions on vehicles that they did not know were possible. Technology will make it even easier to have instant access to a variety of programs and have the ability to take a customer and a vehicle and select the best terms and rates for their individual situation from a variety of lending sources.
With both sub-prime and conventional lenders developing programs for buyers of all credit criteria, dealers will soon realize they are able to make more deals at higher gross margins by incorporating these programs into one department in order to deliver to each customer the best terms, rates, and conditions.