An awful lot of pundits, including yours truly, have been predicting that we are in the beginning stages of significant Special Finance growth. A recent article in Automotive News spells out why their writer sees an increase in Special Finance, although the writer, Jim Henry, calls it “sub-prime.” The difference is semantics, but I prefer Special Finance, the difference being another topic altogether. Suffice it to say, in my not-so- humble opinion, that we have sub-prime lenders, but Special Finance customers!
The obvious condition driving this growth is demand. The average age of a car or truck on the road today is approaching 11 years old. That is a record in recent history. Many buyers are holding back due to employment uncertainty or just because they are unsure that we have, indeed, entered a recovery period. Having said that, an awful lot of prospective buyers have slipped into the Special Finance market over the past 4 years. The reasons would fill pages, but suffice it to say that a ton of people have had financial difficulty since this downturn became a full-fledged recession back in 2008.
The lenders themselves have gotten much more aggressive in marketing their dealer programs. They are finding it much easier to get capital on the open market. The rates of return on asset-backed securities have become quite attractive for investors. Sub-prime lenders get the majority of their capital from the asset-backed security market, so the availability of funding is good and the prediction is that sub-prime, asset-backed activity will be up 40-50% over 2011.
What does all this mean to you or us as an industry? It means that if your dealership currently has a dedicated Special Finance department, they would be wise to sharpen their skills to take advantage of these prospects. Advertising, inventory, lender programs should all be reviewed in anticipation of an increasing pool of prospects. It has been hard to get excited about working a Special Finance customer these past few years. The odds of delivering a deal at a reasonable profit were slim indeed. Time for an attitude adjustment!
If your store does not currently have an active Special Finance department, it is time to revisit your decision to avoid Special Finance. Depending on who you talk to or listen to, the prediction is that over 50% of all vehicle sales in 2012 will be to Special Finance customers. I don’t know what the current attitudes are, in your neck of the woods, but it will become more and more difficult to ignore the huge profit potential that Special Finance presents.
You can take my advice or simply ignore it. However, when you are sitting on the sidelines watching 50% of your potential sales drive onto your competitor’s lot, I’ll be the one refraining from saying ‘I told you so!”
Just my two cents worth!
About the author
Dick Hassberger, of Lake Orion, Michigan is a veteran of over 50 years in the Automotive Financing and Leasing industry, starting his career with the former Wayne Oakland Bank in September 1960. Dick currently represents VOISYS in Michigan. He has held executive positions with Major Banks, Lending Institutions and Leasing companies and has accumulated a vast store of knowledge in the automotive financing industry, which he regularly shares with his client dealerships as well as readers of this blog. Dick was a regular author for World of Special Finance Magazine.