Differing BHPH Strategies in the Current Economic Environment

Differing BHPH Strategies in the Current Economic Environment

Buy here, pay here dealers are approaching the current economic environment with differing strategies. If an operator does not have cash reserves on hand (very unlikely in the BHPH business) then he must either loan his operation more money or make an additional capital contribution in order to make an immediate debt reduction.
The current economic environment has severely curtailed the supply of capital to all industries. How are lenders & operators reacting to the current funding environment? If an immediate debt reduction is not required, but the lender wants a reduction in the future, operators are reacting in different ways:
1. Cutting overhead and expenses to increase cash flow which can then be used to repay future debt.
2. Reducing sales volumes by tightening underwriting criteria. This reduces the amount of money being “put on the street” but likely will also reduce overall portfolio size.
3. Changing the business model by reducing vehicle acquisition cost or by increasing down payments or repayments. However, selling a cheaper car with the same origination term will likely increase losses in the future.
4. Trying to refinance or obtain additional subordinated debt.
5. Considering a “sell-off” of a portion of their existing portfolio with the proceeds to be used to reduce debt.
6. Other options include lot closures, consolidation, sale or merger.
Although none of the above appear desirable, the goal to reduce the amount of leverage in the industry is a positive one. As difficult economic times continue, better-quality credit customers are entering the market. The competition for these customers has been greatly reduced by a reduction in the subprime lending market. Operators who can “free up” additional cash flow will be able to capitalize on these opportunities. Further, as better-quality credit customers enter the market it is hoped that operators will improve their deal economics by increasing down payments and repayments. However, many operators will have to learn how to attract and close these “better customers” as they expect different treatment.The decisions operators face today will have signifi cant implications for years to come. Therefore, future strategies should be carefully evaluated in conjunction with networking and dealer education. Costly trial-and-error mistakes must be avoided as it appears there is not enough money to spread around!
Kenneth Shilson, CPA, is founder of the National Alliance of Buy Here, Pay Here Dealers (NABD) with 3rd annual UCC confered in Houston, TX Nov 8-10. Call 713-290-8171 to register or visit www.bhphinfo.com.

GM Reinstitutes Zero-Percent Financing

GM Reinstitutes Zero-Percent Financing on Select Models to Better Compete DETROIT — A General Motors spokesperson told SubPrime Auto Finance News this morning that the automaker kicked off a 72-Hour Sale today that features zero-percent financing for up to 72 months on select 2008 models. This offer is only available for ...

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According to the Federal Reserve, consumer credit increased

WASHINGTON, D.C. — According to the Federal Reserve, consumer credit increased at an annual rate of 7.5 percent in November. Meanwhile, revolving credit increased at an annual rate of 11.25 percent and non-revolving credit increased at an annual rate of 5 percent. More specifically, the average interest rate for new-car loans at auto finance companies averaged 4.20 percent in November, compared to 4.11 percent in October and 4.48 percent in September. As for median maturity at auto finance companies, it came in at 63.1 months in November, as opposed to 63.7 percent in October and 62.9 percent in September. The average maturity appears to be creeping up from its most recent low of 59.2 percent in the second quarter. Continuing on, the loan-to-value metric was 95 in November, compared with 95 in October and 96 in September.Additionally, the average amount financed was $29,419 for November, down slightly from $30,738 in October, but up from $28,908 in September. Finally, looking at the average interest rate for a 48-month new-car loan at commercial banks, the Federal Reserve found it was 8.41 percent in November. The last available statistic was in the third quarter, when the median interest rate was 7.82 percent. In the second quarter, the average APR was 7.92 percent

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New EPA Estimates Could Shock Consumers; Hybrids Take Biggest Hit

New EPA Estimates Could Shock Consumers; Hybrids Take Biggest Hit

Federal gas mileage estimates will drop for 2008 model year vehicles
Expected to be 12%-30% lower than for 2007 MY vehicles
For gas-electric hybrid cars, drop will be 20%-30%
New EPA rules consider extreme temperature changes, varying road grades
Consider use of power-sucking devices such as air conditioners, aggressive driving
As in past, new tests conducted in laboratory environment
Significant Points
New, lower mileage ratings do not mean auto technology moving backward
Federal government's testing has moved forward; become more realistic
EPA procedures don't guarantee mileage ratings on window sticker same as on road
Past federal mileage ratings out of sync w/ real-world experience
Simplified mileage statement label helps consumers compare fuel economy
Click Here for Full Digest and Source Article:
http://www.automotivedigest.com/view_art.asp?articlesID=23368
Sourced From: Detroit News, October 27, 2007

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NABD to Host National Underwriting & Collection Conference on November 11 – 13, 2007!

Houston, Texas – The National Alliance of Buy Here, Pay Here Dealers (NABD) today announced that it will hold a training conference covering Underwriting & Collections in Houston, Texas on November11 – 13, 2007. More than 600 attendees are expected to attend the three day event, which will focus on these two most important elements of buy here, pay here operations.

Kenneth Shilson, CPA and founder of NABD, indicated that an outstanding group of speakers, sponsors, and operators have been assembled for the show. “Earlier this year, NABD hosted a sold out Collection Academy, in Atlanta, Georgia, at the Manheim DRIVE facility. The Houston conference will offer additional and more advanced training on many of the subjects we discussed there. The program will feature role playing and other interactive training techniques to help attendees become more successful. From taking an application properly, to closing the deal, and collecting the payment legally and efficiently – these sessions will cover it all,” Shilson said.

The conference will be held at the Wyndham Greenspoint Hotel in Houston, Texas, which is located near the airport to facilitate travel by attendees who live outside the Houston area. NABD has arranged some very favorable room rates and the Sunday through Tuesday format minimizes the time attendees must be away from their respective operations. The program includes two receptions and a luncheon which will facilitate attendee networking. The sessions will conclude in the early afternoon on Tuesday to facilitate return travel. “The Wyndham Greenspoint was the site of our 2004 Collection Conference and attendees were pleased with the facilities and amenities,” Shilson stated.

This program is designed for those who are new to the business and anyone interested in improving their collection and underwriting systems and processes. “This training will make you more successful,” Shilson stated.

Those interested in registering may do so online at www.bhphinfo.com or by calling NABD headquarters at 713-290-8171.

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Fed Passes on Rate Increase for Second Time

Situation

• W/ only 1 dissenting vote, Fed declines for 2nd time to raise rates
  
• Follow-up statement indicated would maintain rates at next meeting as well
  
• Suggested that inflation risk easing due to housing downturn, retreating energy prices
  
• Bernanke view that slowing economy will damp inflation at odds w/ some economists
  
• Latter experts say continuing strong consumer demand may lead to increased prices
  
• Dissenting Fed policy maker, Jeffrey Lacker, favored quarter point raise
  

Significant Points

• Next meeting in late Oct, just before midterm elections
  
• Stock market buoyed by Fed decision, Dow Jones closed just below record high
  
• Economic adviser, Albert Wojnilower: continued strong consumer spending fueling "creeping inflation"
  
• Fed acknowledged risk, said future actions would depend on "evolution of the outlook for both inflation and economic growth"
  
• Fed statement omitted any reference to effect of rising labor costs
  
• Moody's Economy.com chief economist considers omission significant

Read QuotesClick Here for Full Digest and Source Article:
http://www.automotivedigest.com/view_art.asp?articlesID=20282

Sourced From: The New York Times, September 21,2006

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Auto Buyers Boning Up on Financing Options

Auto Buyers Boning Up on Financing Options

Situation:
New survey by AWARE shows consumers more savvy about auto financing
Found 83% of Americans aware of options, 58% feel informed about financing
67% plan to do more research before next purchase, 54% will check credit scores
64% will compare interest rates, 70% plan to negotiate financing
41% prefer Internet as info source

• Significant Points:
  AWARE is collaborative industry effort to educate consumers about auto financing
  
• Primary initiative is website--http://www.autofinancing101.org/
  
• No ads or lead generation sales tactics on website
  
• Survey found 71% want more info from vehicle financing industry
  
• Especially African Americans (83%), consumers between ages 18-24 (86%)
  
• 47% ranked negotiating rates 1st, 42% finding good rates 2nd for more information Read Quotes
• Click Here for Full Digest and Source Article:
  http://www.automotivedigest.com/view_art.asp?articlesID=20117
  Sourced From: The Auto Channel, September 5, 2006

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U.S. Consumer Credit Up 2.4% in May, Credit Cards Up 10%

What’s the best way to prepare for the upcoming financial crisis? If you’re an American consumer, it’s probably to take on more debt. Like, say, $4.4 billion more in debt in May, according to a MarketWatch story.
Overall consumer debt jumped up by 2.4% in May to $2.173 trillion. The culprit? Rising credit card debt, due in part to astronomical fuel prices as well as skyrocketing housing costs. Revolving credit — like credit cards – expanded by a whopping 10% in May. That’s an additional $6.7 billion in outstanding revolving debt to bring the standing total to $812 billion. Non-revolving debt actually fell 2% in May.
The increase in consumer credit was about $1 billion more than economists were expecting. In a survey conducted by MarketWatch, analysts expected a credit expansion of $3.4 billion for May.
Source: MarketWatch

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More States Follow California's Lead to Protect Car Buyers

1. CA's new "Car Buyer's Bill of Rights" goes into effect July 1
2. Provides option to return used car for any reason within 2 days
3. Caps dealer service markup fee at 2.5%, more clearly defines term "certified"
4. Similar legislation pending in MA; LA, AK, NY, NC also considering more protection
5. Consumer advocates say new CA law doesn't go far enough
6. Claim dealers will profit from changes like fees for return option, restocking
   

Significant Points

1. Legislation sparked by consumer complaints about unscrupulous auto dealers
   
2. Consumer advocates say minorities targeted by extra dealer markups, add-on charges
   
3. Also cite "certified" preowned vehicles w/ frame damage, other problems
   
4. Consumers for Auto Reliability and Safety: "What we ended up with was very watered down"
5. CARS president Rosemary Shahan: "We're not touting this bill as a model"
6. CA dealers disagree, say law represents "most comprehensive reform of the car buying process in the last several years"

Read Background

Click Here for Full Digest and Source Article: http://www.automotivedigest.com/view_art.asp?articlesID=19507
Sourced From: The Wall Street Journal, June 27, 2006

Market Rallies as Fed Cools Inflation Language

Situation
1. Fed raised interest rates for 17th consecutive time to 5.25%
2. But market rallies as Fed appears to suggest continued rate raises may not be necessary
3. Tone of remarks less urgent, acknowledge slowing growth
4. Left room to raise rates at next meeting; inflation still above Fed's "comfort zone"
5. Convinced that harder to combat inflation than to correct slowdown if rates pushed too high
6. Some say energy prices, higher interest rates already setting stage for serious slowdown

Significant Points

1. Slower growth due to cooling of housing market, previous interest rate hikes, energy prices
2. GDP rose at 5.6% annual rate in 1st Q, but 2 inflation gauges lowered
3. Jobless claims up as rate of job creation declines
4. Unsold home inventories up, sales prices rising more slowly, construction employment down sharply
5. National Association of Manufacturers says "Evidence of a slowing economy is widespread"
6. Investors looking for signs that Fed can engineer "soft landing" to era of slower growth

Click Here for Full Digest and Source Article:
http://www.automotivedigest.com/view_art.asp?articlesID=19513 Sourced From: The Wall Street Journal, June 29, 2006; The New York Times, June 30, 2006

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Icentives, 0% Loans, Free Gas -

1. High gas prices combine w/ rising interest rates to revive vehicle incentives
2. Zero percent loans offered by Detroit Big-3 captive lenders
3. Offer of cash rebates or up to $6K free gas for car purchase at CA dealership
4. Chrysler restores 0% loans/cashback on most models for up to 60 months



1. Edmunds.com Jesse Toprak: 0% loans better deal for consumers than cash rebate
2. Growing demand for econo models, turning away from gas guzzlers seen as growing trend
3. Consumers switch from 6-cylinder models to 4-cylinders w/ better fuel economy
4. Used vehicles also affected, resale value on hybrid models have appreciated

Sourced From: Wall Street Journal, May 2, 2006

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Equifax, Experian and TransUnion Roll Out New Joint Credit Score

The nation's three consumer credit reporting companies - Equifax, Experian and TransUnion - today jointly announced the introduction of a new credit score designed to simplify and enhance the credit process for both consumers and credit grantors.

VantageScoresm is a direct result of market demand for a more consistent and objective approach to credit scoring methodology across all three national credit reporting companies. This approach is unprecedented in the marketplace.

The new VantageScore leverages the collective experience of the industry's leading experts on credit data, scoring and analytics. Under the new scoring system, credit score variance between credit reporting companies will be attributed to data differences within each of the three consumer credit files and not to the structure of the scoring model or data interpretation.

By combining cutting-edge, patent-pending analytic techniques with a highly intuitive scale for scoring, VantageScore will provide consumers and businesses with a highly predictive, consistent score that is easy to understand and apply. VantageScore uses score ranges from 501 to 990. Consumers and credit grantors alike will recognize the logical score groupings that approximate the familiar academic scale:

901-990 - A
801-900 - B
701-800 - C
601-700 - D
501-600 - F


VantageScore is being independently marketed and sold separately through each of the three national credit reporting companies via licensing agreements with VantageScore Solutions, LLC. VantageScore is commercially available beginning today.


Source: Press Release

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Are you looking for an auto loan? If you have good credit or poor credit we have auto loan solutions that may help you out. Do you know what kind of rates you should expect to get. A little knowledge will go a long way in helping you to get the best rates you can and not pay to much.
First you need to know your credit score, before you will know if you are considered a prime customer, a near prime customer , a non-prime customer or sub-prime customer. Sounds confusing doesn't it.

If your credit score is 680 or above you should be a Prime Customer

A score of 640 to 680 you could be a Near Prime Customer

A score of 580 to 640 you could be a Non-Prime customer

A score of 550 and below and you could be considered a Sub-Prime customer.

There are other factors that contribute to where you rank in credit scale. For example you could have a 700 credit score with only 2 or 3 trade lines and be considered a thin file which could keep you from getting the prime rates. Open trade lines, job time, and residence time are all things that could affect your final interest rate.

I have almost 30 years of experience in the auto industry and plan to use this blog to share some of my knowledge with others. The links that are included will take you to some of the biggest lenders in the industry.