BOOTH #709 BHPH IS CHANGING, ARE YOU CHANGING WITH IT? BY: KENNETH SHILSON, CPA PRESIDENT/FOUNDER SUBPRIME ANALYTICS WWW.SUBANALYTICS.COM NATIONAL ALLIANCE OF BUY HERE PAY HERE DEALERS (NABD) WWW.BHPHINFO.COM
Securitizations Fueled Unprecedented Growth! Auto loan balances in 2016 surged at the fastest pace in the last 18 years! Delinquencies have begun to surge. They re now 35% higher than the crazy peak of the prior bubble. -Wolf Street Report 2/16/17
About Auto Securitization Performance: Fitch ratings reported subprime delinquencies hit a 20 year high in March and some of the smaller lenders have cut back on originations, stopped securitizations, or shuttered their doors completely. The number of new players in the space has slowed down. Auto Finance News April, 2017
About Auto Securitization Performance: Subprime annualized net losses reached 9.7% in February compared with a 13.1% loss rate in 2009. There will either be portfolios sold or a consolidation of companies definitely. The industry is returning to normal and some of the companies have not been able to get expected returns. -Fitch Report -April 2017
What s Being Financed? Understanding The Different Business Models In Subprime Auto Finance Today! Your Business Model Dictates Your Success!
INDEPENDENT BHPH OPERATORS AVERAGE AMOUNT FINANCED Average Amount Financed $11,200 $11,000 $10,800 $10,600 $10,400 $10,200 $10,000 $9,800 $9,600 $9,400 $11,090 $11,015 $10,689 $10,765 $10,084 2012 2013 2014 2015 2016 Average Amount Financed Source: Subprime Analytics
INDEPENDENT BHPH OPERATORS AVERAGE ORIGINAL TERM (MONTHS) Average Original Term (Months) Months 44 43 42 41 40 39 38 37 36 35 43 42 40 39 38 2012 2013 2014 2015 2016 Source: Subprime Analytics
INDEPENDENT BHPH OPERATORS AVERAGE MONTHLY PAYMENT AMOUNT Average Monthly Payment Amount $390 $385 $386 $386 $381 $380 $377 $377 $375 $370 2012 2013 2014 2015 2016 Source: Subprime Analytics
INDEPENDENT BHPH OPERATORS AVERAGE FINANCE RATE Average Finance Rate 22.5% 22.0% 21.5% 21.0% 20.5% 20.0% 19.5% 19.0% 18.5% 18.0% 17.5% 22.0% 22.0% 20.0% 20.0% 19.0% 2012 2013 2014 2015 2016 Average Interest Rate Source: Subprime Analytics
Opportunity Knocks For BHPH! In terms of volume, we ve definitely reached a peak. Most of the players that have been around for years have tightened up and cut back on originations. -Fitch Report April, 2017
Opportunity Knocks For BHPH! People are starting to default on their risky auto loans, but this is not the next housing bubble! -The Washington Post March, 2017 The vehicles and these customers will return to the BHPH market
THE 10 COMMANDMENTS OF BHPH A FINANCIAL PERSPECTIVE! About Growth 1. Evaluate your business model from a cash flow perspective. (Your model dictates your success and remember time is your enemy.) 2. Good portfolios are built over time, not overnight! (Controlled growth is needed for long-term success. Build an annuity.) 3. Ego gets in the way of your cash flow! (Bigger is not always better.) 4. Don t just sell cars, keep them sold! (Good Underwriting/Collections are critical to long term success.)
THE 10 COMMANDMENTS OF BHPH A FINANCIAL PERSPECTIVE! About Management 5. Learn from your losses, and those of your competitors; Don t repeat them! (Use metrics and portfolio analysis to identify changes and trends.) 6. The quickest way to be a millionaire is start with two million! (BHPH is extremely capital intensive; don t use trial and error.) 7. Cash is the only thing that s real, everything else is an illusion! (Evaluate all entrepreneurial decisions from a financial perspective. What is the cost of doing something new?)
THE 10 COMMANDMENTS OF BHPH A FINANCIAL PERSPECTIVE! About Management (continued) 8. A simple formula for success in BHPH. (Cash In Deal = Risk) 9. Success is about building customer relationships, not just sales transactions! (Keep vehicles running to keep customers paying and treat them fairly.) 10.The more you learn, the more you will earn! (Training and dealer education have never been more important.) It Looks Simple, But It s Not Easy!
INDEPENDENT BHPH OPERATORS KEY LOSS METRICS Loss Metrics Metric 2016 Average BHPH Benchmark 2015 Average BHPH Benchmark 2014 Average BHPH Benchmark Average Default Rate (% of Loans Written Off) 33.96% 31.45% 31.16% Average Net Dollar Loss $5,916 $6,061 $5,749 Average Recovery Percent (% of Charge Off Recovered) 23.87% 25.30% 31.60% Highest Cumulative Default Month After Origination 22nd Month 21st Month 18th Month Source: Subprime Analytics
INDEPENDENT BHPH OPERATORS KEY RATIOS Important Ratios Ratio 2016 Average BHPH Benchmark 2015 Average BHPH Benchmark 2014 Average BHPH Benchmark Allowance for Bad Debts / Finance Receivables 26% 24% 23% Total Debt / Total Assets 62% 56% 51% Bad Debts / Vehicle Sales 27% 25% 26% Gross Profit / Vehicle Sales 29% 31% 31% Source: SGC Certified Public Accountants
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