Sub-Prime Finance: Are We Slowing Down?
By Chris Leedom
By the time you read this, I will have conducted my fifth annual National Special Finance & Buy-Here Pay-Here Conference in Las Vegas. I thought it might be appropriate to share with you some market observations that are unfolding.
On the surface, it appears as though some members of the lending community may be slowing down a bit. While preparing for the conference, I encountered a number of lenders who are somewhat reluctant to talk about their companies and programs in a large forum. In contrast, three to four years ago, I could barely find space to accommodate the masses. My reason for sharing this with you is that it may be a telltale sign of where the market is headed.
Virtually all lenders are focusing on efficiency. All of you have probably heard of the proverbial "look-to-book" ratio. Most lenders want a ten percent look-to-book ratio. That is to say if you submit one hundred applications, a lender would expect ten booked contracts. As sub-prime lenders continue to monitor efficiency, I am seeing more and more dealer cancellations. More specifically, lenders are ceasing to do business with dealers who may be booking contracts but are negatively impacting efficiency. If a lender has to look at five hundred applications from one dealer to book five contracts, that hurts the dealer who submits fifty applications and books three contracts. Furthermore, I see more and more lenders slowing down the sign-up process. The goal is to generate the maximum number of contracts that fulfill their lending capacity with the least number of dealers.
It appears that as lenders place more importance on efficiency, there may be less interest in the full scale marketing effort to new dealers than transpired historically. This would appear to signal a clear shift in the supply versus demand equation. Frankly, it is surprising to see this retreat on such a large scale. I believe that there are still some players who are aggressive about their marketing efforts to new dealers, but the norm seems to signal a slowdown from many of the players.
For now, it appears to take more effort on a dealer's part to actually get the attention of a perspective lender, complete an enrollment packet, and sign up. I am sure I will be bombarded with e-mails saying "that is exactly what is happening to me."
Christopher M. Leedom is the Executive Vice President for CarBiz.com and co-founder of IndependentDealer.com. He also moderates Dealer Twenty Groups and is based in Sarasota, Florida. He is a recognized industry expert and trainer for sub-prime finance and is the Chairman and Founder of the National Special Finance and Buy-Here Pay-Here Conference. cleedom@dealeronline.com
