From the March issue: Despite a recent industrywide rise in auto loan delinquencies, one legacy prime lender is expanding its product set to satisfy dealer partners.
“We needed to reinvent our business model,” Bank of the West Executive Vice President of Personal Finance Michael Pereira told Auto Finance News.
“Bank of the West has a long history of being a player in the super-prime to prime credit segment,” added Kim Gershon, senior vice president and head of auto. “We were meeting [dealer] needs in a specific segment of business and realized we had the opportunity to have an overall relationship and be one of their principal lenders not only on retail but other banking services as well.”
When reevaluating the bank’s position in the sector, Pereira realized there were opportunities available. “We decided to take a holistic approach,” he said, “by occupying the place of a key banking partner or becoming the preferred lender. This will also enable the bank to reach its profitability goals and is consistent with how Bank of the West’s parent, BNP Paribas Group, operates in other countries.”
In early 2018, Bank of the West invested $40 million to transform itself into a “full spectrum, full service, flexible vehicle financing platform,” Pereira said. Following a midyear soft launch, the bank debuted its Premier Partner Program in California at the end of 2018, which consolidates the bank’s efforts to strengthen and deepen relationships with dealers. “What’s important to the dealers is to really get their sales done and manage their cash flows in a very efficient manner,” Pereira said.
With that goal top of mind, the bank opened its book of business to borrowers with credit scores as low as 560, created a customer service team and online portal to help dealers, and invested heavily in the risk it was about to take on. Beyond retail lending, Bank of the West offers cash flow and interest risk guidance, as well as commercial floorplan financing and wealth management products, Pereira said.
Encouraging early results — in origination volume and credit mix — prompted the bank to tee up four more states — Louisiana, Utah, Arizona, and Kansas — to launch the program by midyear. Bank of the West’s California loan volume rose 31.1% in the latter half of 2018, according to Experian Automotive’s AutoCount data. The bank originated 3,758 loans for new and used vehicles from July through December, compared with 2,866 loans from January through June.
Reconnecting With Dealers
While Bank of the West’s entry into the nonprime market came at a time when auto delinquencies industrywide were rising, Pereira had a different focus in mind: transforming the bank’s value proposition to its dealers.
Already, dealers have noticed improvement in communication efforts. “If I were to tell you [Bank of the West] was the No. 1 communicating bank, I’d be lying to you,” said Eddie Cruz, finance manager at Diamond Hills Chevrolet Buick GMC, one of the dealerships that piloted the bank’s new program. Capital One Auto Finance and GM Financial usually respond much faster and provide tools, such as Capital One’s Dealer Navigator, that make it easier to close deals, he added.
“Before, when you submitted the deal, you would hardly hear from anybody and they wouldn’t give you a phone number,” Cruz said. “Now they’re being a little more attentive and responsive when you submit a deal over to them.”
Meanwhile, Lauren Oliver, finance manager at Carson Nissan just south of Los Angeles, was unaware of the program in her home state. Though the dealership is partnered with Bank of the West, it has not sent a deal to the bank in the past three months. “The first step is to send some reps out to get us, you know, looking at them in the first place,” Oliver said, adding that other lenders’ reps visit to discuss financing promotions and options, but that she has not seen any reps from Bank of the West.
In Wisconsin, where the bank has not yet gone full spectrum, interest for such a program is growing at Brodhead Chevrolet Buick LLC. Despite not knowing what rates the bank would offer for loans with credit scores below 620, Brodhead Finance Manager Eric Welsh said Bank of the West’s rates are usually better than those offered by the other lenders the dealership works with, like Chase Auto Finance, US Bank, and Santander Consumer USA. “If they start doing some subprime stuff, I’ll send them even more business,” Welsh said.
Investing in Customer Service and Risk Management
At the heart of the bank’s value proposition transformation lies the Partner Care team — a department comprised of customer service and sales representatives dedicated to deepening dealer relations.
Pereira said the customer service and sales reps work in tandem as “a customer care contact center where trained and knowledgeable professionals, who understand underwriting, can really make real-time credit and pricing decisions.” The Partner Care team, he added, will be critical to getting more complex deals over the finish line. As a part of the dual taskforce, the lender offers dealers a once-a-week sales call.
Further, Bank of the West has been “fleshing out” its products and pricing team, Pereira said. The bank has recruited senior leadership for that area and has brought in specialists to collaborate on its pricing model. “Pricing is key, so competitive buy rates with approval rates is a strong value proposition,” he said.
Beyond bulking up personnel, Bank of the West modernized its IT systems, built out its risk and analytics teams, and enhanced collection strategies to allow for borrowers with lower credit. Also, the bank developed new scorecards for both nonprime and prime borrowers.
Overall, Bank of the West has looked to its parent company, BNP Paribas, for risk management and collection guidance. “We’ve been importing the best practices of the group and seeing how we can leverage those in the U.S. context,” Pereira said.
Though the Partner Plus Program is still in its infancy, feedback from dealers has been “very positive,” Gershon told AFN. Still, Finance Manager Cruz said that “only time will tell” whether the investments will pay off with dealer partners. “If they do start buying deeper and put us on that program, obviously they’ll see an increased deal count from us, so I think it should impact it in a positive way.”