The BHPH 2017 benchmarks were released in June by the NIADA, which merged with the NABD earlier this year. Some of the information was released earlier, but the full benchmarks were released at the NIADA conference in Orlanda, Florida and can be found in the latest release of BHPH Dealer. It seems that there have been some alterations in subprime used car financing, and that some BHPH dealers are maintaining higher profits in the changing market than others.
Of course, it is no secret by now that the higher levels of competition first seen in 2013 have continued. Unsurprisingly, according to the BHPH 2017 benchmarks competition among dealers is higher in urban areas than in rural ones. Where subprime auto loans are concerned, money from securizations is increasing along with sales of subprime auto loan bonds – although the exact source of these funds is changing. Wall street has begun to shift away from deep subprime in favor of prime and near-prime auto financing. However, unregulated lenders and capital providers, such as special finance companies and hedge funds, are eagerly entering the BHPH market, keeping competition high.
In response, some BHPH dealerships are attempting to keep profits up by stocking newer, higher-cost used cars, and increasing both prices and the amounts financed. BHPH 2017 benchmarks data shows that financing terms at these dealerships have also grown longer. Average down payments, however, are not increasing to match. Partially because of this, average “cash in deal” costs and related portfolio risks are up roughly 12 percent, although according to data released by Experian DSO (days sales outstanding or outstanding receivables) for the BHPH industry are up by only 0.4 percent.
Not all dealerships, however, are following this risky trend. In fact, compared to securizations, many independent BHPH dealerships are often choosing to continue the tried-and-true method of financing lower amounts for shorter terms while keeping down payment percentages consistent. Financing rates of around 20 percent per year have remained fairly steady. According to the BHPH 2017 benchmarks, those dealerships adhering to this method as opposed to following the lead of securizations are seeing higher portfolio returns as well as better collections results.
So, the takeaway from the BHPH 2017 benchmarks is this: competition remains high, especially in urban areas, due in part to securizations, though the sources of those securizations is beginning to shift. Some BHPH dealerships are dealing with this competition by adopting finance practices similar to those seen in securizations, specifically selling used cars with higher cash values at longer financing terms while not raising down payments. However, those dealerships continuing to sell less expensive vehicles and shorter terms without lowering down payments seem to be coming out on top. This information from the BHPH 2017 benchmarks will, it is hoped, help to inform BHPH dealerships business models and practices for the remainder of 2018 and beyond.
Source: BHPH Dealer