Thanks to SGC Accounting, we have an early look at the NIADA/NABD 2018 BHPH benchmarks. This offers dealers the long-anticipated chance to see what trends have been affecting their businesses, and what 2019 is likely to hold. There were few surprises, but there are some things definitely worth noting. BHPH Marketplace shares a summary, as well as some NIADA predictions about what the industry is likely to see as the year progresses.
One major change observed in the 2018 BHPH benchmarks was Wall Street’s slowing of deep-subrime auto securization purchases and shifting focus from subprime loans to near-subprime loans. This has helped to relax the heavy competition BHPH dealers faced where financing is concerned. However, that is not to say that there is not still competition. Credit unions continued courting car buyers with subprime credit throughout 2018, and while banks and similar financial institutions have instituted stricter regulations for subprime loans– due in part to increasing deep subprime defaults and enforcement of regulations by government organizations– more sources of unregulated capital, such as hedge funds and private equity firms, entered the subprime market during 2018.
Although BHPH auto sales were rather flat compared to 2017, many dealerships have still seen high returns on their portfolios. As predicted by last year’s BHPH benchmarks, the dealerships who have seen the best returns are those who have kept prices low and financing terms short. Tightening underwriting also had a positive effect on returns for dealerships. Overall, average financing rates remained level at about 20 percent. BHPH dealerships offered lower amounts financed and monthly payments as well as shorter terms compared with securitization loans. This may have helped many dealerships perform better in 2018 than they otherwise might have. Lower monthly payments likely helped more BHPH car buyers keep their vehicles, which was to the advantage of dealerships. The values of repossessed vehicles dropped slightly, indicating that keeping customers sold continues to be vital.
2019 looks promising for dealerships. According to the 2018 BHPH benchmarks, auto dealers can expect to see competition for subprime and deep subprime loan customers decrease as financial companies continue to focus more on car buyers with higher credit ratings. Rising costs for new cars also means that more customers will be buying used vehicles, and that may increase business for the BHPH industry. Dealerships may even see some customers with better credit ratings coming through their doors. To capture and keep new buyers, however, customer relations will be more important than ever. Successful dealerships will continue to focus not only on selling vehicles, but on keeping them sold.
The same cash-efficient business models that performed well in 2018 will continue to offer dealers’ the best chance of doing exactly that while increasing returns and decreasing risks. Because credit quality has been hurt by high competition, matching a customers credit worthiness with vehicles they can realistically afford will also play a huge part in keeping those customers sold. Dealerships should be wary of making deals they know are beyond customer’s means just to make a sale, especially as there appears to be no evidence that repossessed vehicle values are likely to improve.
Technology is continuing to increase in importance within the BHPH industry. Dealers who use social media not only as a marketing tool, but also to communicate with and collect from customers, will be more successful. The current BHPH benchmarks report also called texting one of the most important communication tools for the future. Furthermore, technology that increases efficiency and decreases overhead costs, including pay portals and GPS tracking, will be more vital than ever. BHPH dealerships that have not yet invested in technology should seriously consider doing so in 2019.
Finally, according to the BHPH benchmarks, compliance will continue to be vital for dealerships throughout 2019. Some may be inclined to believe that changes to the CFPB currently being enacted by congress will make regulations less stringent, but that will not be the case. As business news continues to be filled by lawsuits and disciplinary actions against any company failing to adhere to financial compliance rules, BHPH dealerships should be more cautious than ever. BHPH Marketplace recommends creating a compliance checklist to ensure dealers are meeting all requirements and preclude future problems.
Thanks to the trends and forecasts found in the new 2018 BHPH benchmarks, dealerships can build a clearer image of what is working, what isn’t, and what should be expected. By integrating this information into their plans and business models, BHPH auto dealers can reduce risk, increase profits, and ensure a more successful year. After all, it’s said that knowledge is power, and the NIADA/NABD may be the most powerful information available in the industry.
Source: SGC Accounting