There’s a tremendous amount of data and media coverage about the automotive finance markets, but mostly they deal with new car and used car loans to consumers with average and above average credit. Sure, the data includes the subprime marketplace, but specific data on delinquencies, recency, and charge-offs in the deep subprime markets isn’t readily available.
Private companies don’t report their data, publicly traded companies only report quarterly. Trends and “news” about the marketplace is more difficult to discover. Dealers can wait until national associations compile the data they can collect, but for the small, medium, and even large BHPH operator, it will be too little, too late to make changes to their lending practices, collections operations, and repossession decisions.
What dealers can do is delve into their own data and adjust their business practices accordingly.
They can also learn from their GPS units which consumers having trouble paying now, may have problems paying in the future. Has their car been idle for several days at a service center, or has the vehicle stopped arriving at their place of employment. They can determine whether what their customers are saying is actually true. This information isn’t a perfect predictor, but more information is better than less.What dealers can also do, is take a look at the macroeconomic picture, and extrapolate what national and even state-wide trends might mean for them. For instance, earlier this month TransUnion, which tracks more than 81 million auto loans in the U.S., said the percentage of loans that are at least 60 days delinquent hit 1.65% in the third quarter of 2022, the highest rate for 60-day delinquencies in more than a decade. That’s a red flag.
This rise in delinquencies, according to TransUnion, follows the end of loan-accommodation programs set up during the pandemic. Now that the programs have ended, the credit agency reports that more than 200,000 auto loans which had some sort of accommodation are listed as 60 days delinquent. About half of those are more than 60 days delinquent.
Another thing dealers can do is just take a look around their offices, the local restaurants, grocery stores, and even churches. Listen. If they look and listen carefully, they’ll get an eye and ear full about rising prices of nearly everything, and rising costs of services, too. In the past week, I’ve gotten notices from three different tech providers of significant price increases. One provider I use every day will increase its monthly fees by 60 percent in 2023. Sure, they apologized for the increase and noted they hadn’t increased their rates for more than 5 years, but it didn’t stop them. Everything is costing more, and wages while increasing, aren’t keeping pace with the rise costs of goods and services.
BHPH dealers must watch for these trends, and react accordingly. Collections personnel must be trained well and closely managed. More information and insight into finance portfolio performance, can be gained directly from collectors and their reports than almost anywhere else.
Protecting your investment is vital. Make sure every vehicle you sell or lease is equipped with a robust GPS unit. Use your platform’s dashboard to regularly check on device health and make sure it’s operating properly. Be ready to respond immediately to geofence alerts for things like entry to an impound lot, and abandonment alerts. Time is definitely money in situations like these.
It looks like there are some headwinds headed for the subprime marketplace, and being forewarned, ready to respond quickly, and having your investment protected is the difference between profitability and a financial loss.
