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The Hiccups

Timing is everything. This issue addresses the opinions of dealers all across the country on the Auto Finance business (note, Tom Hudson, I didn’t say “lenders”). The 2nd Annual Auto Finance Survey is technically the third time in 12 months (counting the Dealers’ Choice Awards) Auto Dealer Monthly has taken the temperature of the dealers on their all-important retail “partners.”
I have said many times, the Auto Finance business is like looking at the sea. It is a fluid environment. You have high tides and low tides. Sometimes you are riding the wave, and sometimes you are in the trough. Only one thing is constant—it is always changing.
Change manifests itself in many ways. There are acquisitions and mergers and accompanying name changes. HSBC buying Household Automotive Finance, changing their name and moving their focus more toward the near-prime and prime market. Capital One buying Onyx and embracing a beta test with select independent dealers. Wells Fargo selling off their Consumer Auto Receivables division and becoming CAR Financial. New lenders emerging to national prominence such as Regional Acceptance did over the last 12 months.

Change also represents new challenges, or “hiccups.” All businesses have them. Depending on the operation’s financial strength and the leadership’s mettle they can truly wind up being nothing more than that—all the way to an aneurism. Over the last 15 years in the auto finance community, we have witnessed many hiccups. Some of these have come from today’s most respected and significant auto finance companies in the industry. Others came from companies that unfortunately didn’t have the strength and leadership and are no longer around.

About two and a half years ago, hiccups by Capital One, Household and AmeriCredit had some (not me!) in the Special Finance industry thinking that the sky was falling, that Special Finance as we knew it was about to change forever. Obviously, that was not the case. The impact of three of the biggest auto finance companies collectively reducing their volume while refocusing their programs created a period of time with a low tide. Their hiccups inevitably became nothing more than that, causing them to refocus and alter their models and today they are more solid than ever and a key financing partner to thousands of dealers across the country.

As I said earlier, every auto finance company has had a hiccup—some being more visible than others. It happens suddenly when management realizes that results from operations aren’t what their business model, or their capital partners in the industry, predicted that they would be. As I write this column, it is Centrix Financial’s turn to have a hiccup. To date, their primary source of funds has been credit unions. The “FDIC” of the credit union world is the NCUA, who has taken a dim view of the involvement of credit unions in sub-prime financing, especially in the manner that credit unions have valued those loans on their books.

Obviously, by the results in this magazine, Centrix has become enormously popular with dealers across the country over the past two years. Just as obvious, no one likes to see these hiccups occur. From a dealer’s perspective, they fear that it could spell the beginning of the end for a financing partner, just as it did for me with at least 15 different companies over the course of 12 years. You immediately look at your contracts in transit list and wonder among other things, “If it happened to them, who could be next?” It also creates doubts among those necessary Wall Street investors that many of the auto finance companies need for securitizing paper and other capital needs.

The problem is, the company experiencing the hiccup most often knows when it’s over. The industry partners don’t have that same luxury. Bad news travels fast—in seconds it seems. Conversely, good news seems to be better timed with a calendar. In addition, dealers who have had to scramble once may harbor those fears for years. Some of those fears are justified. If the dealers were made aware of the entire situation, they might not think twice about utilizing them again. Unfortunately, they seldom “know.”

It’s Centrix’s turn to have the visible hiccup right now. Without a doubt, there will be others. There always are. I wish the fine folks at Centrix the best, and I am sure their dealer partners do the same. I also remind dealers that they should never put all of their eggs in just one basket, as it can be very painful when these inevitable hiccups do occur.

For those companies that experience the hiccups, I wish it was as easy to fix as the spoonful of sugar and honey that I give my daughter.

Vol 1, Issue 9



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