Used Car News 8/1/22

UCN

Used Car News

8/1/2022

Dealers Tighten Underwriting for Success

By Jeffrey Bellant

IN THIS ISSUE:

Rush - Dated Material

• Digital Sales • Dealer Tech • Retail Markets

LAS VEGAS – Dealers discussed the challenges of underwriting in an economy filled with the wild cards of tight inventory, high prices and inflation during the National Independent Automobile Dealers Association Expo & Convention last month.

“Without good underwriting, your business will not be very successful,” said Bill Elizondo, NIADA 20 Group moderator, who led the discussion. “There are a lot of opportunities to do different types of underwriting.”

Strong underwriting sets up a customer for success, he said.

Verification, down payments, consistency and term lengths are critical to success, Elizondo said. Some of his key factors include time at a job and residence with a five-year history, income verification, distance from lot, residence verification and credit report.

The focus is not selling cars, but selling and collecting payments, Elizondo said.

Businesses in this market come in all varieties.

“We have kind of a ‘beater-with-aheater’ model,” said David Bearley, president of Dave’s Greenlight Auto Sales and BAC Financial in Illinois.

“We have a lower ACV (actual cash value) of about $5,800.”

For good repeat customers, the business will go as high as $20,000+ ACV. “We have been in business 16 years and have almost 700 accounts and $4.9 million in principal balance,” Bearley said.

Kendra Brown co-owns Brown Family Auto Sales in Houston with her husband, Charles. The 9-yearold dealership has 129 accounts with a $500,000 portfolio.

The average ACV is $4,800 and

the terms are 12 to 24 months.

Ed McDaniel is CEO of Bond Automotive, a lease-here, pay-here dealership in Tampa he recently acquired.

He previously ran a regional leasehere, pay-here dealership.

At Bond Automotive, he has 1,500 accounts and $11 million in principal balance that has been converted from buy-here, pay-here to leasehere, pay-here.

Panelists discussed the biggest

risk factors they target.

Brown said time on job and job history are critical. Even a fixed income is OK, as long as the customers can show they have lived on that for a long time.

Even if they are transient, as long as they’ve shown they will live in proximity to the dealership, it isn’t a problem, she said.

McDaniel said payment to income Continued on page 12

September 6-8, 2022 Sheraton Dallas Hotel

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in Concert Wednesday, September 7

Digital Sales 8/1/2022

Wholesale Companies Embrace Digital Platforms “We’ve learned that there’s still a need to continue in the physical auction space,” Jones said. “A number of The pandemic may have forced other companies are becoming more dealers to enter the digital world, digitally focused. We’re almost on but wholesale auto auctions were another trajectory because we’ve already there. come from digital roots and we’re Companies like Cox Automotive, going into the physical space.”

ACV and EBlock are using and exExpanding into commercial and panding digital tools and platforms captive finance customers can help to draw dealers and boost their profEBlock build the right partnerships its. and serve its dealer base.

Blink and you’ll miss the latest “We see extending that to a full moves these firms are making. inventory solution,” he said. “That One of the most recent upstream includes retail acquisition upstream platforms comes via UpsideDirect, from customers for dealthe latest digital effort ers. But all of it is done from Cox Automotive, with the dealer in mind.” which opened up in That includes expandthe Atlanta market this ed floor planning and spring, expanded to Chiother services for dealcago and just recently ers. was available in the Ohio Jones said EBlock market. plans to focus on serving Derek Hanson, vice dealers. president of operations, “The buyers are what vAuto, discussed the gendrives the quality of your esis of this project. sales,” he said.

“This came out of a lot EBlock’s digital operaof research the team had tion allows support and done – led by Dale Polwholesaling upstream. lak – on those dealers It’s about allowing the who perform best in the dealer to buy and sell a wholesale marketplace,” vehicle “wherever they he said. want.”

In evaluating the dealJones said EBlock ers who did best in that wants to have “a soluwholesale market, the Photos by Jeffrey Bellant tion for every situation a vAuto team discovered DIGITAL: Simon Jones of EBlock hangs out in his booth at NIADA. Also, Cox Automotive recently introduced a pilot dealer runs into,” whethsome key attributes they program for its new UpsideDirect platform. er they are acquiring, all had, Pollak said. managing or disposing “No. 1, it starts at the of inventory. point of appraisal,” HanAnother big player on the digison said. “No, 2, you’ve got to get stant appraisal through Kelley Blue Western part of the U.S. in the old tal side is ACV, a digital automoyour car in front of the most eye- Book’s Instant Cash offer or an ap- ABS footprint.

Last February, EBlock acquired tive marketplace and data services balls. No. 3, you’ve got to let the car praisal at the dealership.

Hanson said dealers can also use it Michigan’s Fastlane Auto Exchange partner for dealers and commercial sell at the market price and No. 4, partners you’ve got to stand behind it for the for aged inventory already on their in the Flint area. lots.

Most recently, it acquired LouiACV recently announced the buyers.”

The initial sale in Atlanta beat ex- siana’s 1st Choice Auto Auction in launch of its Smart Acquisition The goal was to drive more profit pectations, he said.

Hammond, La. Manager (S.A.M.), which delivers for the dealer via wholesale.

“We had more bidding activity in The company has retained leader- two new ways to engage with ACV’s Cox announced Upside at NADA, Marketplace. rolled it out in Atlanta this April and the first 15 minutes then I had seen ship from those auctions. in a lot of auctions in my time,” HanIndustry veteran John Brasher ACV’s S.A.M. offers a buying API a month later in Chicago. heads EBlock’s merger & acquisi- (Application Programming InterWith Upside, everything for the son said.

The bidding starts at 50% of MMR tions operation, Jones said. face) to drive a programmatic buyseller is located in vAuto, Cox’s inBrasher helps with those transi- ing user experience. ventory management software, and buyers know the car is going to be sold. It creates a “frenzy of activ- tions using his third-generation aucThese solutions allow dealers to Hanson said. tion experience, added Jones. set-up proxy bids via an AI-powered Upside tells dealers the baseline ity,” he said.

The tool is all about mitigating “He’s a household name in the in- buying agent to make data-driven wholesale value for a vehicle when they acquire it. Upside guarantees risk, especially when it comes to dependent auction world,” Jones decisions.

These proxies will bid on and buy dealers at least $300 above the Kel- dealers accepting a trade-in, Han- said. “It instills trust in the customer, the team members and makes cars within the ACV Marketplace ley Blue Book Instant Cash Offer son said.

Another company that is strong in that whole transition go smoother.” entirely based on the dealer’s prewhen they use the solution to sell the digital space is the aptly named While EBlock won’t advertise its set criteria. ACV’s S.A.M. enables the vehicle. next move, it is looking for “strategic dealers to customize their autoIf a vehicle’s wholesale sale EBlock.

Coming out of The Great White points” for expansion which won’t matic buying preferences down to achieves more than the minimum guaranteed $300, dealers get the North, the 7-year-old Toronto firm compete with the sites it has already minute-level vehicle details (160+ started making noise in the U.S. last acquired, Jones said. data fields).

By Jeffrey Bellant

lion’s share of the upside (90%). If a vehicle’s sale does not achieve additional profit, Upside covers the loss.

“We send out an inspector, we create a listing and we put the vehicle in the marketplace at UpsideDirect. com, and once the car sells, we stand behind it,” Hanson said.

Buyers can find the car on UpsideDirect.com, Manheim.com or OVE. com.

If there’s any issue with the buyer, Upside takes care of it, the seller is out of the equation, he said.

The process begins with the in-

year.

“We provide a full inventory solution to dealer partners – both newcar franchises and independents – in the U.S. and Canada,” said Simon Jones, EBlock’s vice president of sales.

“We grew really quickly to become a market leader in Canada. We entered the U.S. market in July of last year with the acquisition of digital auction group ABS Auto Auction.”

ABS had several locations in California, Arizona, Nevada and Oregon, so EBlock’s growth has been in the

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News Briefs 8/1/2022

‘Viper Voyage’ Raises $113,300 The Manheim Express “Viper Voyage of Appreciation” came to an end with $113,300 raised after the vehicle was auctioned off last month at Manheim Atlanta.

The Viper tour stopped at 34 dealerships over the last year to show appreciation and help raise money for Boys & Girls Clubs of America, Girls Inc., and Toys for Tots.

The 2009 Dodge Viper was wrapped in Manheim Express graphics from its inaugural appearance at the NADA Convention in 2019. The Manheim Express team decided to get the Viper back on the road for a final farewell tour before being auctioned off for charities.

“We’re incredibly grateful for everyone who worked hard to make the Viper Voyage happen—and we extend extra thanks to all of our dealer clients who participated along the way,” said Ben Caffee, associate vice president, Manheim Digital. “From showing how deeply we appreciate our Manheim Express clients to raising money for

three deserving organizations, the results of the voyage far exceeded our expectations. This was the perfect way to turn a great car into a lot of good for the community.”

At each stop on the voyage, Manheim hosted a client appreciation celebration and offered to have a Manheim Express Concierge specialist list vehicles that same day.

For every car that was listed that day and later sold, Manheim waived the sell fee and contributed $100 to the charity donation. After 34 visits, the vehicle was auctioned off during Manheim Atlanta’s Cargaritaville Highline Sale for $81,750 on July 13.

Combined with the money raised through listed vehicles and a donation from the company, the total amount donated across the three deserving charities came to $115,300.

Boys & Girls Clubs of America, Girls Inc. and Toys for Tots were all selected because they align with Cox’s unwavering commitment to give back to the communities where team members live and work.

IAA Expands in Indiana

IAA Inc., a global digital marketplace connecting vehicle buyers and sellers, announced the completion of the IAA Indianapolis South branch expansion and the start of construction on the new IAA Fort Wayne branch.

These two Indiana investments will more than double IAA’s capacity in the state. The new Fort Wayne location will be IAA’s fourth branch in Indiana.

“The added capacity of these two branches will increase IAA’s presence in central and southern Indiana, helping to ensure that we continue to meet increasing demand across the state,” said Tim O’Day, President of U.S. Operations at IAA.

Commercial Truck Prices Rise Work Truck Solutions released its second quarter ComTrend Analysis of new and used commercial vehicles. Although there are still many supply chain challenges in the industry, certain positives were noted.

On the used truck side, the median mileage for used vehicles sold was up again, although only slightly, in the second quarter of 2022; but when comparing the numbers to the same quarter in 2021, the jump was almost 30%, indicating interest in used work trucks and vans remains strong.

Further indications of strong demand for used commercial vehicles was demonstrated by another significant jump in the average price, which went up by more than $2,000 from the prior quarter.

When compared to the same quarter in 2021, the increase was much higher, coming in at almost a 27% increase.

“The second quarter shows the continued demand for both new and used commercial vehicles,” said Kathryn Schifferle, CEO of Work Truck Solutions.

“Given that these work trucks and vans fuel so many businesses throughout the entire economy, it makes sense that shoppers for these vehicles continue to search for and purchase them.

“Reading between the lines, the statistics also indicate that dealerships continue to have significant opportunities in this market, especially those who stay at the forefront of keeping in touch with customers and potential buyers - those are the ones who will be well positioned going forward.”

Volume 28 | No.6 Published By General Media LLC USED CAR NEWS (ISSN 1555-7413) is published at : Used Car News P.O. Box 80800 St. Clair Shores, MI 48080 Phone: 586-772-5200 or 800-794-0760 Fax: 586-772-9400 www.usedcarnews.com Charles M. Thomas Founder (1947-2002) Lynda R. Thomas, Publisher Emeritus Colleen Fitzgerald, Publisher Editorial: Jeffrey Bellant, Managing Editor Ed Fitzgerald, Staff Writer Advertising: Shannon Colby, Account Manager Tony Moorby Columnist: Circulation: subs@usedcarnews.com Production: Tom Savage, Production Manager Cee Lippens, Web Master Used Car News is published every third week.

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Technology 8/1/2022

Technology Helps Businesses Navigate Through Headwinds

By Jeffrey Bellant

LAS VEGAS – Finding and using showroom technology from customer relationship management or dealer management systems all the way to emails, texting or simple phone calls can help dealers find inventory and boost business.

A panel at the National Independent Automobile Dealers Association’s Convention & Expo discussed how tech can help dealers navigate any challenging market.

Ed Curry, NIADA 20 Group moderator, led the discussion.

“Inventory is the lifeblood of any dealership,” said Randy Kobat of vAuto. “You can’t sell what you don’t have. So, it really starts with the car.”

Curating the lot makes sure dealers have the right inventory that sells in their specific market.

“The question becomes where to find it,” Kobat said.

The drying up of dealer trades because of the drop of new-car inventory forces independents to seek out new sources of inventory.

“We’ve seen a three-time increase in those alternative sources for inventory,” Kobat said. “The first and foremost comes directly from the consumer.”

Kobat bought a car four years ago from a dealer in Green Bay, Wis., who has since become a friend.

“I got an email from his dealership this week, asking how that car is performing for me – four years later,” Kobat said. “(He was) wanting to know if I wanted to trade it in for something new.”

Other tools help dealers accurately assess the value of a car so they can make a good acquisition.

“It’s moving from valuation to value creation,” Kobat said. “Because we all know you make money when you buy the car, not necessarily

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when you sell the car.”

Rapid Recon’s Anthony Greenhalgh discussed how his product can help dealers.

“Rapid Recon provides a platform for accountability, transparency and communication,” Greenhalgh said.

Accountability is not about beating up an employee but more about feedback, he said.

Dealers who floorplan a car – which means pay interest on it – need to be aware of the status of that car.

“Every time that you don’t know what’s going on with something, a little bit of that money is seeping away,” Greenhalgh said. “So, really, this is about doing more with less.”

Tech that helps manage inventory and recon more quickly saves on floorplan interest and makes money on the backend.

Greenhalgh added it’s also important to know how to use the tech-

Photo By Jeffrey Bellant TECH: Ed Curry, NIADA 20 Group moderator, led a discussion on dealership technology at NIADA’s annual convention in Las Vegas.

nology and tools you have. Dealers should talk to their vendors so they know what their technology can do and how to use it most efficiently.

Continued on page 6

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1 The tradename Subaru Motors Finance (SMF) and the Subaru logo are owned by Subaru of America, Inc. (Subaru) or its affiliates and are licensed to JPMorgan Chase Bank, N.A. (Chase). Auto finance accounts are owned by Chase.

2 The tradename Maserati Capital USA and the Maserati logo are owned by Maserati North America, Inc. (Maserati) or its affiliates and are licensed to JPMorgan Chase Bank, N.A. (Chase). Auto finance accounts are owned by Chase.

3 The tradename Aston Martin Financial Services and the Aston Martin logo are owned by Aston Martin Lagonda of North America Inc. (Aston Martin) or its affiliates and are licensed to JPMorgan Chase Bank, N.A. (Chase). Auto finance accounts are owned by Chase.

4 The tradenames Jaguar Financial Group and Land Rover Group and their respective logos are owned by Jaguar Land Rover North America, LLC (JLR) or its affiliates and are licensed to JPMorgan Chase Bank, N.A. (Chase). Auto finance accounts are owned by Chase.

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Used Car News 8/1/2022

Tech – continued from page 5 Even if a dealership doesn’t utilize a bunch of technology, it should standardize whatever system it uses.

“If you’re not going to go with a digital workflow solution, at least say, ‘All of my approvals for any work I’m doing from any of my vendors are going to come into this email address,’” Greenhalgh said.

That way if there are any questions about how something was handled, there is just one place to look.

“Standardization is key in this business,” Greenhalgh said.

Jesse Martin is senior vice president of sales and marketing for DealerCenter, which offers everything from a DMS and CRM to inventory management.

“For us on the DMS side, it’s exciting because we develop technology all day,” Martin said.

What helps dealers is that solutions are converging so that a dealer doesn’t have separate “siloed” systems that are hard to integrate, Martin said.

However, he admits the auto industry always lags a little bit behind the technology curve.

It’s important to have an integrated system for simplicity and efficiency.

Martin urges dealers to always assess and reassess the systems and tools they use.

“Just because you’ve used a solution for 15 years doesn’t mean it’s the best solution for you today,” Martin said.

One benefit of technology is simplifying the enormous amount of data that dealers have to look at.

Dashboards, automated reporting and analytics are all technology that help dealers run smarter and more profitable businesses, Martin said.

Dealers need to evaluate those tools, however.

Checking the conversion rate or ROI (return on investment) of CarGurus versus, say, Craigslist, is important to know, Martin said.

“It surprised me how many dealers are not looking at that,” Martin said.

Jeff McCurry of ComplyNet added that compliance has to be part of any discussion of showroom technology.

McCurry warns new risk is introduced throughout each part of the sales process and data collection, through each department.

The upcoming change in the Federal Trade Commission’s Safeguards Rule is just one example of the need to maintain and manage compliance, McCurry said.

Dealers ignore compliance because it doesn’t appear to add to

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their bottom line. But they ignore it at their own peril.

“Compliance is not forefront for dealers,” McCurry said. “It doesn’t make you money, per se.”

There are indirect costs associated with compliance – or being out of compliance.

Being able to show an insurance company that you are reducing or eliminating risk can save money on premiums, for example. There is also the risk of lawsuits or regulatory fines for ignoring compliance.

“Same thing with your lenders,” McCurry said. “There will come a time when your lenders insist that you demonstrate that you’re compliant with all your processes.”

They want to consider the liability that comes with a certain dealer, whether it’s loaning money or buying paper.

“There is technology that helps you manage compliance,” McCurry said.

At ComplyNet, questions dealers have include: What do I need to do?

Why do I need to do it? The biggest is: How do I do it?

“That’s where compliance technology can help you check the boxes,” McCurry said.

It helps dealers create a “culture” of compliance.

One of the panelists said dealers should take full advantage of all the features they have in their current products before shopping for a different one.

Each product often improves or adds features over the years and a dealer may not be aware that the product they use offers a feature that they are shopping for elsewhere.

Greenhalgh said sharing with employees why you do the things you do will get “buy-in” from them.

“Chances are, those frontline people that have to deal with all the stuff that goes on every day are going to have some pretty good intuition on how to fix a problem,” Greenhalgh said. “Just because you have your name on the door doesn’t mean you’re going to have all the answers.

“And you don’t have to have all the answers. You hire good people for good money for good ideas like that.”

Kobat added that tools are only as good as the people and processes that a dealer has in the store.

“Our founder of vAuto, Dale Pollak, would say, ‘If you’re not going to invest in improving your business, then don’t waste your money on the tool,’” he said.

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Buy-Here, Pay-Here 8/1/2022

Volatile Market Offers Opportunities for BHPH Dealers

By Jeffrey Bellant

LAS VEGAS – Experts in the buyhere, pay-here industry discussed the current market and how best to take advantage of opportunities during the National Independent Automobile Dealers Association.

The panel addressed current trends from rising interest rates to tax refunds and inventory challenges.

Cox Automotive’s Mark Strand, director of economic & industry insights, said inflation has been a big topic.

One factor has been the extraordinary pandemic stimulus programs.

“The Fed really let inflation get out of control,” Strand said. “Some of that money-printing was the source of that.

The implication is that inflation is running rampant at a time when vehicle prices are at an all-time high,

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Strand said.

“Raising interest rates now, trying to get control of inflation, is going to be another headwind,” he said. “It’s going to make payments higher.”

The cascade will push everyone down a notch to find a lower price point, which posts a challenge for BHPH and subprime dealers.

“At the bottom end, you’re probably going to lose customers who are going to have to sit out,” Strand said.

This period could include more losses, less collections, higher floorplan costs and more delinquencies.

But it also may open up new BHPH customers.

“Banks and mainstream lenders are going to pull back a little bit on subprime, and you may see those customers coming back,” Strand said.

Whether it’s a net positive, a net negative or just a wash for BHPH remains to be seen.

1025650_NGC_REFRESH_PHASE4_PRINT_AD-UsedCarNews-19x6.12_FINAL.indd 1

Photo by Jeffrey Bellant BHPH: CPA Steven Carstens (from left), Mark VanGeison, president of Spartan Financial Partners and Mark Strand of Cox Automotive discuss buy-here, pay-here issues.

Ken Shilson, president of Subprime Analytics, said since everyone in the same industry faces the same challenge, the question is, what to do about it?

“The answer is you have to be

more efficient; you’ve got to make more from less and implement technology to be more efficient,” Shilson said.

Capital will be more critical.

Continued on page 12

Retail Markets 8/1/2022 Compiled by Ed Fitzgerald

FLORIDA

Leigh Anne Thompson, owner, Fort Myers Auto Mall, Fort Myers, Fla. “We’ve been in business since 2012. We started out in a warehouse, pretty small, maybe five cars. Later, we purchased property and were going to build, but during COVID we acquired property next door to us – an Enterprise (car rental) closed.

“COVID affected us on the inventory side, that’s how I see it. In Florida, we were deemed essential. But we were concerned. We had to stop spending; we didn’t know where it was headed.

“For inventory, I like to be at 30 vehicles. Recently I was in the 20s, and right now we have maybe seven on the lot. We’ve been selling them quicker than we’ve been getting ‘em. We usually sell about 15-20 a month.

“I’d say we sell 60 percent cars, 20 percent trucks and 20 percent SUVs and vans. I love vans, I just bought two this week, the vans don’t last.

“I prefer to go to auctions in person. I like Your Auction, that’s a regional chain here in Florida.

“We do some buy-here pay-here. We use GPS, but not starter-interrupts.

“Our average down payment now is around $3,000.

In the buy-here, pay-here I like to do three years and under.

“For reconditioning we average about $1,000 per vehicle. I had a Corvette we sold about a month ago and two tires were $1,000 each.

“I advertise on CarGurus, and seven years ago we started a Facebook group called The Independent Dealer.

I started it with Dan Reel out of Ohio. Now we have 1,700 members and there’s

also a podcast. It’s a wealth of knowledge. You can just type in a question and another dealer will probably have the answer.

“The last car I sold was a 2015 Toyota Corolla. It had 97,000 miles and we sold it for $15,800.”

NORTH CAROLINA

Jerry Padrick, owner, M&M Auto, Lumberton, N.C. “My Dad started the dealership in 1986 and my brother, Chris Moore, came on full time around 1992 and I came into the business in the late 1993-94 range.

“Business was great in 2021 and cars were somewhat more plentiful, although we probably didn’t take full advantage of the sales boom due to the uncertainty surrounding COVID. “This year, 2022, has been a tough year to acquire in-

ventory. Prices are through the roof and we are now basically picking and choosing what vehicles we are willing to overpay for -- we stick with the vehicles that have given us good service in the past.

“Pre-COVID we would stock between 50-75 vehicles. Now we are keeping 20-30 vehicles and trying to replace them as fast as they sell. Typically, we sell 30-35 units per month although we are down from that this year.

“Our sales break down: 40% cars, 35% SUVs and 25% trucks. Trucks are a lower percentage due to the high costs, particularly over the last 2 years.

“We sell a good mix of both domestic and imports.

“I would say our average recon costs are creeping up to close to $1,000 a unit. We do most recon in-house.

“We buy 90% of our vehicles at auction.

“I prefer to buy 2010-andup model vehicles with mileage under 110,000 but I’ll buy anything if it’s a nice vehicle.

“Our average down payment ranges from $2,000$2,500 and average term is 42 months.

“We are 95% buy-here, pay-here.

“My advice for any dealer (not just dealers starting out) would be to join your state’s association and get involved.

It keeps dealers aware of the legislative concerns which face us every day. Everyone is busy, but the association is worth the time to help ensure we are doing our best to protect the industry we all love.

“The last vehicle we sold was a 2012 Jeep Liberty Sport for $12,895 with 97,000 miles.”

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Wholesale Markets 8/1/2022 Compiled by Jeffrey Bellant

LOUISIANA

Matt Chiasson, general manager, America’s Auto Auction - Shreveport, Shreveport, La.: “XLerate Group acquired the auction last August.

“We have four lanes.

“We ran 832 units (July 20). We’re the biggest sale in the state of Louisiana.

“Conversion rates were up until the end of June 2021, we were in the highs 60s.

Then in July 2021, they just dropped into the mid-40s.

“This year we’ve been right at 55% for the year, maybe 57%. But after the 4th of July, it dipped.

“The price-per-car sold has climbed. But I know that’s happened across all the auctions.

“Three years ago, our average price per car was $11,000. Now our average price per car is $19,000. The market dictates the car. We

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were seeing the high-dollar, high-priced, newest retailready stuff that was doing really well.

“We had some strong sellers who cornered that market here. So, we partnered with our new-car store buyers and promoted 14-day guarantees built into the purchase. We were running 100 to 150 cars a week that were 2019 or 2020 models with less than 30,000 miles.

They were all within $300 of being retail ready. Those cars were bringing ridiculous money.

“That’s starting to cool off a little bit, of course, as the vehicles start to change.

We’re seeing a lot more of that $10,000 to $15,000 car.

“Independent dealers’ retail businesses are moving right along. They’ve got no complaints. People still have money. It’s interesting to me how people in the car

market have been able to adjust their business models.

They’ve moved so quickly to adapt to what’s going on.

“Despite these big numbers that we’re running, we just developed a fleet department two months ago.

We just picked up Credit Acceptance Corp. and Ally.

We’re working that now. It’s just in its infancy, but it’s coming along.

“So, the vast majority of our volumes are dealer cars.

“I think there will be another uptick once we get through the summer, maybe October.”

NEW YORK

Jim Terwilliger, sales manager, State Line Auto Auction, Waverly, N.Y. “We just celebrated 41 years in June. Our anniversary sale in June went well.

We had 1,300 cars on the ground and sold 57%. We

had almost 1,000 bidders and we gave about $20,500 at the end of the sale in $500 increments.

“We have eight lanes.

“We’re running on average about 900 units right now.

“Conversion rates have dropped a little bit in the last couple of weeks as it always does in July. We probably average about 60-62%.

“Our volume (mix) fluctuates a little bit. We used to have a lot more commercial because of General Motors. But I’m thinking we’re 60/40, dealer to commercial.

“Our average price on the block is up. I think we’re between $17,000 and $20,000.

“The last few weeks have been very slow. I just think it’s vacations, gas prices, and the economy. Think about it. This world is so upside down and backwards. Nothing makes any sense.

“We also do a monthly RV/

powersports sale, but we’ve never been huge in this sale.

“So, we’ll run about 25 units. It’s mostly RVs. We also get one or two repos every week.

“Overall, we’re growing and we’re getting better. We went from 1,300 before COVID to something like 600.

Now we’re pushing 900 just about every week.

“It’s coming back. We’re strong dealer-wise, and we’re a strong auction in New York State.

“Dealers like (the physical auction) with cars driving through the lanes.

“But I think we’re going to see a lot more repos. The writing’s on the wall.

“The owner here says, ‘just keep blocking and tackling, put one foot in front of the other and keep doing what we know how to do.’”

Used Car News 8/1/2022

Buy-Here, Pay-Here — continued from page 8 Mark VanGeison of Spartan Financial Partners said the finance companies that package auto loans for securitization used to make deals from high 1% to low 2%.

“Those deals are now trading in the market of upwards of 4%,” he said.

That’s baked into floorplans and other products for 2022 and 2023.

“The market is moving rapidly to a higher rate environment for auto,” VanGeison said. “The silver lining here (for BHPH) is it’s going to push everybody (lenders) upmarket.”

The customers who were being bought at CarMax or AutoNation are going to start to come back to BHPH. “I think you’re going to start to see better customers,” VanGeison said.

“But you have to prepare, especially if you’re looking for capital, for a rising rate environment and you have to manage your business.

“It’s just not going away.”

Oher challenges will come in the form of accounting changes, said Steven Carstens, a CPA with Houston-based Shilson, Goldberg, Cheung and Associates.

In 2022, new leasing rules went into effect. Companies normally hid debt on their books in the form of leases, but the new rules will change that.

“The new leasing rules basically make any lease you sign, as a lessee, a debt on your financial statement,” Carstens said. “If you sign a 10-year lease on a property at $5,000 a year, you just put $600,000 of debt on your books.”

The reason is the lease means you signed a promise to pay that lease for 10 years, he said.

“Now, you do get to recognize the corresponding asset and you get to control that asset,” Carstens added.

“But if you have debt-to-equity ra-

tios, you just raised your debt and haven’t touched your equity. It could affect covenants significantly.”

Then in 2023, the challenge will be CECL (current expected credit loss), which is the new allowance for credit loss rule. This means you will have to reserve all the future losses in your portfolio in your financial statement.

“The trick with that is the CECL rule (in 2023) will be forward-looking,” Carstens said. “So, in the past, if you historically lost 20% in your portfolio, you could reserve 20% (for losses) no problem.

“Now, it’s future looking. So, if the economy starts to decline – and it looks like it’s going to – and your losses start to ramp up, it doesn’t matter that your historic losses were at 20%. If it’s suddenly trending toward 30%, you’ll be reserving at what the trend is, not (the historic amount).

“It could be a larger reserve and it will come out of your equity, which again could affect covenants.”

Shilson calls CECL “one of the biggest challenges facing this industry, ever.”

Discussions on BHPH always turn to tax refund season and there have been changes on that front.

Traditionally, BHPH dealers rely on tax refund season for success and the pandemic era has affected tax refunds as it has everything else.

“Basically, there are a lot of things going on,” said Bill Neylan, CEO of TaxMax. “This tax season, consumers had to put on their tax returns how much they received from their stimulus amounts and advanced child tax credit amounts.”

Neylan expects refunds to remain in the $10,000 to $20,000 range for BHPH customers.

Underwriting — continued from page 1 ratio (PTI) is important.

“That gives us a good idea if they can afford the car they want,” he said.

“Stability factors” also include time on the job and time at residence, McDaniel said.

Bearley looks at payment related to net income.

“You can’t spend gross, all you can do is spend net income,” he said.

“Our sweet spot is 17% to 20% of net income for a car payment.

“We look at bank statements because there’s a wealth of information on bank statements.”

People are switching jobs more often for better opportunity. Bearley said he’s more concerned about time “between jobs.”

Source of income is also important. Is it a local factory with a long history or is it a seasonal job or rideshare program?

Bearley also looks at their history of payments to payday lenders.

McDaniel will extend a term to make a payment work.

Brown said with the cheaper, higher mileage car she sells, term is important.

“We want the length of the note to

12

be shorter,” she said. “We want the car to run the life of the loan. Then we want the customer in another car and another car.”

Bearley said he has an average term of 30 months, so he uses a pricing matrix – the price of the car determines the down payment and weekly payment amount.

Elizondo pointed out that the panelists stay with tested systems, without making too many exceptions.

In terms of down payments, Bearley said a big down payment doesn’t guarantee a regular paying customer.

They still must meet the other criteria.

Brown agreed that stability, income and other factors are more important than the down payment.

McDaniel said the other school of thought is that a decent customer who offers a higher down payment has more of an ownership in the deal.

“They’ve got skin in the game and are less likely to walk away,” he said.

“We generally push the down payments for the better customers.

“On a $12,000 ACV, we try to get $3,500 down,” McDaniel said.

All agreed that payday payments were critical.

Bearley, for the most part, requires payday payments with autopay.

Up until recently, Brown’s business model was monthly payments, but her 20 Group members “were appalled” when they heard, she said.

Brown is now transitioning to payday payments.

Delinquencies have gone down as a result, she said.

In terms of scoring customers, McDaniel created his own scoring model. It looks at PTI, job time and residence time. It helps him score a customer as A, B or C. Exceptions are allowed, but they are exceptions.

Elizondo said there are scoring tools dealers can explore, such as Neo Financial, AutoZoom and MagiLoop.

McDaniel said simply making the deal affordable for the customer and giving him margin “to keep the lights on” is what makes long-term success. Underwriting is vital.

“If you underwrite well for a customer who is going to pay out the term of the loan,” Brown said, “then

you will have a repeat customer who will refer business to you.”

It acts as efficient marketing and increases the time you have a customer, she added.

Bearley said it’s the dealer’s responsibility to set the customer up for success.

“If they don’t like you, respect you or trust you, they’re not going to pay you,” he said.

“You have to build that experience from day one.”

One way Bearley achieves success is to involve the collector from the start, with a hard close to set expectations at the start.

He added that he always tries to get a trade on every deal, which helps the deal but also makes sure the customer doesn’t have a secondary vehicle.

At the close, Bearley will turn the paperwork over and quiz the customer on their deal.

Brown said no matter how redundant; she wants to reinforce the expectations at the start.

“No late payments, no late payments, no late payments,” she said.

SVR502

619–639–0245

Disconnected Jottings From

Tony Moorby 8/1/2022

Tony Moorby Even from the sidelines, watching the vagaries of the car business, with its quixotic changes over the last couple of years, has been exhausting.

Writing an article about it would be like teaching granny to suck eggs!

Everyone can quote their experiences chapter and verse ranging from making super windfall profits to scraping a living together month by month.

So an opportunity came about through family circumstances to move to a house in Delaware for the summer on the Eastern Shore as part of the Delmarva Peninsula.

Locals affectionately refer to it as ‘slower, lower Delaware’ and for most of the time it fits the soubriquet.

Bethany Beach is just north of Ocean City, Maryland with its famous board-

walk and shares frenetic beach activities, especially on the Fourth of July – public beaches are a mob scene looking more like a can of sardines and everyone has to turn over in unison to get an even tan!

Private firework displays compete with those of the coastal cities and indeed some outdo them in hourlong, fabulous and expensive, eye-popping showing off.

I’ve long fostered an attraction for American seaside towns from cheap and cheerful, ritzy-glitzy tee shirt and boogie board shops and restaurants with cheesy names – Krab Kountry or Beach Bites – come to mind.

At the other end of the scale, Boca Raton is attractive but the people have their noses so far in the air as to counter the attrac-tion.

Ocean View, Delaware is a misnomer; the only way to see the Atlantic would be from a high-rise block of apartments, of which there are none!

The house is on a very beautiful golf course (I’ve yet to see an ugly one) and is as quiet as can be except for the early morning mowers and the occasional noisy foursome at the weekend.

Being on a flat coastal plain allows skies that fit from one horizon to the other with both sunrises and sunsets to entertain.

The main industry is agriculture – corn (mile upon square mile of it), soybeans, chicken farming and cattle complete the bucolic surroundings.

Driving through the countryside is a reward all to itself and is as relaxing as it is pretty.

I recently wrote about

1. Honda SUV

37. Former Chrysler brand

6. Lamborghini model

39. Indy 500 circuit

10. House vote

40. Former Toyota subcompact

12. Large tree 13. Jeep Cherokee _____

43. Ford SUV 44. Compact Hyundai

14. Honda model 17. Oil container

Down

18. Tree resin

1. Hyundai SUV

19. Compact Mitsubishi 2. Colorful features of 20. Place some BMW minis 23. Classic Chrysler 25. Alfa Romeo SUV 28. VW model 30. Honda compact SUV 33. Hyundai sedan 34. Sporty Hyundai, 2 words

9. Former Lotus sedan

15. Jag, for one

16. Sign, a contract 21. Self concept 24. Electric car 26. Chrysler ___ Cruiser

27. Amaze

4. Railway, abbr.

5. Drink that be served hot or cold

31. Period just before 32. Technology used in car safety systems 34. Swedish auto maker 35. Toyota sports car

36. GPS suggestion, abbr.

38. Very long time 41. Prepared 42. Eggs in Rome

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Solution to the 7/11/2022 puzzle

Solution to this puzzle in the 8/22/2022 issue. Call 1.800.794.0760 for a FREE subscription.

14

22. Popular car color

30. Mitsubishi model

8. Ligth metal, symbol

is slowing to the beat of the perennial community.

We’re looking forward to visiting restaurants and shops around us and if I can find an artists’ community we may well stay as long as we like.

3. Gas ____

7. Closet wood

11. Hyundai subcompact

29. Dodge sedan

6. Car roof of a kind

To see past columns from Tony Moorby, visit www.usedcarnews.com/ columnists/tony-moorby

Play Online at Us e d C a r N e ws. co m

By Myles Mellor

Across

• 50-year veteran of the industry • President from 1997– 2000 of ADT Automotive • Served as ADESA’s executive vice president of sales and marketing • Moorby & Associates 2006–present • NAAA Hall of Famer • IARA Circle of Excellence

Aiden, my eldest grandson, and his newfound love of fishing. Ponds and pools have been his playground all summer so far, so he joined us for a few weeks to fish in the sea, in the bays, in the inlets and on a couple of charters to deeper waters with the attendant benefit of dinner that night.

I didn’t know you could eat Triggerfish, let alone how delicious they are.

We bought him a casting rod for surf fishing and he mastered it like an old pro.

Talking of old pros, the local fishermen are the kindest folk, sharing tips and tricks and new ways to set up baits and lures.

I think I was even more fascinated than Aiden. He took to it like a fish to water!

He’s back at home and getting ready for the start of school (where did the summer go?) and the pace of life

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