Here we are. The first DEALER issue of the new millennium. By now most of you may be sick of the "m" word. Don't worry, I will not use it again in this article. I want to highlight some key subprime finance trends for next year.
Currently I', seeing some interesting developments in the world of subprime finance. For purposes of this article I will refer to subprime finance as the process of financing a vehicle to anyone that is "unbankable". In other words, the customer that is unable to receive a financing offer from a bank or finance company under standard terms.
It appears that the corridor between "C" and "D" paper is widening. I am noticing a shift towards better qualified customers from subprime finance companies. Additionally, I am noticing some initial pricing movement toward slightly higher acquisition fees. I believe this trend is a good one even though it may result in $100 to $250 less profit for the dealer. These companies are trying to establish and identify the proper yield that will result in lender profitability. As we have witnessed in 1998 and 1999 the lenders that are unable to identify proper pricing based on buying exit the business rather quickly.
Another trend appears to be the surge of interest in the buy here-pay here side of the business. As lenders tighten credit criteria there is an increasing number of customers left to find some other alternative to finance a vehicle. I would liken it to the growth and interest in buy here-pay here fostered by Mr.Jim Devoe during the mid eighties. As more and more customers are unable to find financing, either prime or subprime, dealers are again revisiting the dealer controlled finance option (buy here-pay here) to profit from additional sales. Mr. Devoe, Chairman and Founder of J.D. Byrider, helped hundreds of dealers learn the buy here-pay here business in the eighties. Dealers must remember that the failure rate for new participants in the buy here-pay here segment is estimated as high as eight out of ten.
We believe that more dealers will be visiting buy here-pay here next year to offset the tightening of credit criteria by subprime lenders. During our 1999 National Special Finance and Buy Here-Pay Here Conference in Las Vegas we observed more dealers interested in buy here-pay here than ever. In this column we will keep you updated on these trends as they develop.
Please take time to visit our booth at the NADA Convention in January. We will be in booth #2515. Also I will spend time at the Automobile Dealer Magazine booth as well. I look forward to seeing you there. Until next time - Good Luck!