Many BHPH dealerships have been anticipating the release of subprime 2017 benchmarks, and the wait is finally over. The merger of NABD with NIADA has, of course, caused some changes, and one of them is that Subprime Analytics has had an even larger pool of data to work with. The organization has reviewed about 2 million 2017 deals, and recently announced it is ready to release subprime 2017 benchmarks. While the full report will be officially made public during the NIADA conference in Orlando Florida later this month, some information is already available on the Subprime Analytics website. According to Ken Shilson, founder of Subprime Analytics, the numbers reveal some changes BHPH dealerships are making, and offer evidence for some of the affects those changes may have moving forward.
It seems that an atypically high amount of money has been used to finance deep subprime used car deals. That’s hardly surprising given evidence of rising subprime and deep subprime auto loans, but it also represents an increased risk. With subprime auto loan defaults at a two-decade high and some small subprime loan companies struggling, it seems almost counter-intuitive to offer more deep subprime auto loans. However, the subprime 2017 benchmarks will reveal that BHPH dealerships are, nonetheless, continuing the trend.
According to Ken Shilson, the answer is fairly simple: competition. BHPH dealerships are taking on greater risk as they vie to finance deals. Customers are plentiful, but changes taking place in subprime financing mean that, more often than before, BHPH dealerships aren’t merely competing with one another.
“It’s been very competitive in the subprime auto finance business in the last 36 months,” Shilson explained. “A lot of that competition has been fueled by auto securitization money coming off of Wall Street. That has made it difficult for the independent dealer to compete because that’s such big money at low interest rates.”
The fact is that the way in which an independent BHPH dealer handles financing is vastly different from the way in which the securitization market deals with it. Auto bond securities are traditionally used to finance newer vehicles for a longer term than what a BHPH dealership can offer. This means that subprime auto loan customers find themselves with the option of a newer used car at a lower interest rate finances over a longer period of time. Furthermore, a company on Wall Street can easily afford to lose an amount that could spell serious trouble for a small BHPH dealership. Without the resources of bond securities backing them up, independent dealers can hardly be expected to compete.
The problem, according to Shilson, is that some BHPH dealers have been extending themselves to try to provide newer model used cars with longer finance periods than they have previously. Some dealers raised sale prices, hoping to make more out of fewer sales which has generally not worked out well. Of course, not all securizations have seen a return on investment either due to rising default rates or at times, failure to collect debts or repossess vehicles.
So, looking at the information in the subprime 2017 benchmarks, what does Shilson suggest BHPH dealerships do? There are several ways to remain relevant and even successful in today’s subprime auto market. The first and most obvious suggestion is to remember that “cash is king.” The subprime 2017 benchmarks reveal that this is one aspect of the buy here pay here market that hasn’t changed. With subprime default rates so high, cash deals are often safer and more reliable for BHPH dealerships.
More importantly, Shilson explained that BHPH dealerships are going to have to learn, adapt, and change the way they do business.
“The old ways are not going to work given the changes in the industry. Operators who want to be successful are going to have to make the adjustments necessary to succeed in the current environment,” he said. “What that really means is they’re going to have to be a lot more proactive. They’re going to have use social media better. They’ll have to use advanced tax refunds to get the customer before their competition. They’ll have to operate more efficiently. They’re going to have to implement technology to get more from less,”
Fortunately, there are a lot of great options available to help BHPH dealerships become more efficient. In fact, BHPH Marketplace recommends several. Selly Automotive’s thorough and easy-to-use CRM, specifically designed for independent and BHPH dealerships, offers tool to increase sales and efficiency. Magnum Contact Marketing specializes in the BHPH industry, providing everything from social media management to integrated live chat lead conversion to email marketing. Lyft has been pioneering a dealership partnership program that provides inexpensive transportation to customers who might otherwise have a hard time coming in to purchase. Embracing options such as these may significantly increase BHPH dealerships’ viability in the current market.
So, while the subprime 2017 benchmarks reveal a growing source of financing competition in the industry, that doesn’t mean that the day of BHPH dealers has ended. Far from it! Those same subprime 2017 benchmarks also reveal options for success. The industry is changing, and dealers must change with it to survive. By better understanding new aspects of the market, and the new options available, BHPH dealerships can remain relevant and successful.