During my last 29 years in auto finance, my mantra has always been the
same: Put credit-impaired customers into vehicles that 1) they can
afford; and 2) a unit that won’t break down before their first payment is
due. Want to see an example at the opposite end of these principles?
Google “Security Capital Funding” and you’ll read outlandish statements
from their customers regarding the collection of payments and units not
being roadworthy.
I truly believe that so much of the finance woes are due to greed from
corporate executives. If companies had stayed true to their original
underwriting and funding policies, there may be more finance companies
around today to service and fund credit-impaired customers.
Instead, corporations became laxed in underwriting, made exceptions to
their guidelines just to “hit the numbers,” and tried to create
scorecards that should have been used as a model and a tool, instead of for
automatic approvals. But greed took their corporations further than any
of us thought imaginable.
I believe to this day that success can come to a well-run company with
moral ethics, back-to-basics underwriting and funding, executives who
work together as a team striving for the same goal, and the true desire
to assist credit-impaired consumers.
Kathleen O’Shaughnessy is Manager of Marketing at the Colorado
Independent Automobile Dealers Association.
Kathy,
While I am not expert like you, in my short time in this business I realized that the deal starts when the dealer buys the car. Meaning not only the deal he gets on the car, but the quality of car the dealer is purchasing.
Put a “good” customer in a bad car and he will not pay.
Put a “not so good” customer in a good car with the right deal structure and you have a good chance at getting paid.
With people able to dip into their home equity to afford better cars and dealers pushing no money down car purchases, it got crazy out there. It seems with people like you and participants in online communities, like this one that JJ has set-up, looking to have an open conversation about the business models that work, I can only hope that we see improved underwriting and business models going forward.
Thanks for the post.
A , …”significant dip occurred in the subprime approval rating over last year. This approval rating came in at 22.71 percent for the first three quarters of this year, compared with 67.01 percent last year.
And to gain approval, subprime applications had to be shopped through 7.9 institutions versus 4.4 in 2007. ”
SOURCE: subprime auto news
That is just a state of the business statistic for you. Sorry I quoted another media outlet on your site JJ. That gives you an idea of the situation out there for subprime finance situations. Customers and dealers are feeling the brunt of bad business models.
When I first started in the sub-prime business in 1984 there were virtually no other lenders in my market. We financed 95% of wholesale, REQUIRED real cash down payment, and discounted that paper by 10%. Our max term was 48 months. By 1995 we were financing 100%, still required real cash down, and discounted 5%, but we still would not extend terms past 48 months. In 1995 I started with GE Customized Auto Credit. Max term was 60 months, 10% cash, trade equity, or rebate was a requirement with a max advance of 110% and discounted 7%. Just a few months ago there were lenders allowing 84 months, 145% line 3 advance, no cap on line 5, no down payment, no poi, no por, financing vehicles with high mileage, and just begging for deals. Am I the only one who saw this coming? Now we are trying to get back to where the business was in the mid 90s but thanks to all the greed there is no such thing as an average customer who owes anything close the acv of his trade. It will take some time and many companies will not be here to see it, but the sub-prime business will return and when it does the advances will be back in line, the down payments will be required, the terms will be shorter and there will be reasonable requirements placed on the customer. Then it will start all over again when more lenders start coming back into the market with greedy executives that place quantity over quality. We have come full circle once. Will we do it again? My answer is “yes”..
Kathleen – I want to thank you for yoiu message in regards to putting customers in good reliable transportation that they can afford. Many of these customers want more than they should buy at the time. Growing up in the car business I always tried to get customers to settle for less than they could afford pay extra and rebuild there credit prior to buying the so called dream car.
Tom — The lease-here, pay-here idea is pretty interesting. I can understand that residual values would be much less of a potential pitfall than with new-car leasing, but how much would a lessee really save? It seems that the residual value of a used car (and I’m not sure what age car we’re talking about here) would be so small that a lease payment would be only minimally less than a loan payment.