Raising Capital and Keeping Customer
Small Dealers Assistance
Once a dealer sells a portfolio via bulk purchase, the responsibility of collecting on the notes in that portfolio is transferred to the buyer. However, for the dealer in need of capital who prefers to keep relationships with customers and collections in-house, there’s another option—an advance.
Gary Page, president of Small Dealers Assistance (SDA), said, “A lot of customers are used to coming in [to the dealership] once a week, every other week … making their payment and talking to the folks at the dealership, and the dealers have done it like that forever.” Many dealers, he said, don’t want to “disturb that relationship, and they shouldn’t” because the majority of repeat and referral business comes from that existing customer base.
By sending those notes (i.e. customers) elsewhere, dealers miss out on future business. Page added that “holding on to your existing customer base” is especially “important in this type of marketplace.” He also feels like the dealer is in a better position to collect these accounts when compared another finance company that might be “located 1,000 miles away.”
Companies like SDA, with its Income Stream Program, assess a dealer’s portfolio much like a bulk purchaser would, but they also closely review the dealer. “Since the dealer’s collecting” SDA puts a lot of emphasis on “the type of underwriting the dealer does, the type of collector the dealer is, and the type of individual the dealer is,” said Page. “We certainly look at the notes and want to make sure that they’re solid in their own respect, but … we’re probably underwriting the dealer even more than the notes.”
SDA also looks at the dealer’s notes that aren’t in the submitted portfolio, which Page said is the “biggest barometer” on what the company feels “comfortable purchasing from each dealer.” Since SDA doesn’t allow portfolios it advances on to have past-due notes in them, the remainder of the dealer’s notes will provide a delinquency rate snapshot.
As far as how SDA is handling business in 2008, Page said, “We’re in a growth phase right now … Our phone is ringing a lot more than it used to.” He added that, since more dealers are looking to do business, SDA examines new dealers more closely than before to properly assess risk. Based on his estimation, SDA will be up at least 10 to 20 percent year-over-year by the end of 2008.
Used-vehicle values fell by an average of 1.9% in October, the largest decline since January but on course with seasonal patterns, according to the latest report from Black Book.