Meetings with Industry Execs at NADA Offer Optimism

for 2009

Last month while attending the NADA convention, I had the good fortune to be able to spend some significant one-on-one time with some top executives of leading subprime finance companies. While I have had countless such opportunities over the last 19 years while in the special finance industry, never have I had the chance to gain such a strong perspective and overlay those opinions in such a short period of time.

There were a couple of powerful takeaways from these meetings. First, their current focus is squarely on the dealers right now. Second, there are some talented people running these finance companies. Finally, there remains a significant amount of disconnect between the perception of each side by the other.

I will start with the last observation first. Both sides need each other. In order for finance companies to make money, they must loan it, and of course, people must pay it back. Dealers must understand that finance companies know this, and they aren’t intentionally trying to be adversarial – they are just trying to be prudent in order to protect their shareholders’ investments. Finance companies must understand that not all dealers are like the relatively few bad apples. Also, while they understand the importance of good communication, they sometimes don’t understand the importance of timeliness.

A good example of that is when a company knows they are going to make a program change at a later date (such as a change in guide books by which advances are calculated), but delay communicating that to their dealer partners who need time to work their way out of inventory that is no longer feasible and acquire inventory that will fit with the new program. I know I am one of the fortunate few who have both the communication channel and experience to appreciate both sides. The challenge is trying to get the people in the seats on both sides to understand the obstacles of the other side, and believe me, it is quite daunting.

Backing up to the second takeaway, the people in charge at the finance company level are as good as they get. I have always known most of the talent at the top across the industry, and I am quite confident that the crop of executives there now is as strong as it ever has been. From a dealer perspective, seldom do they get their just due, but in these difficult times where capital is such a scarce commodity, dealers must understand the talent that is in these positions. Additionally the analytics that are being used to determine their collective courses have never been better. I assure you, these people and their teams aren’t just winging it.

Finally is the dealer scrutiny. This has now been ratcheted up like never before. More than one exec told me, “I know that today we will issue an electronic funds transfer to a dealer that will be out of business tomorrow.” Most of the companies have made finding these dealers job one. Working with dealers on the brink of closing can lead to escalated dealer fraud to get deals approved (desperate times call for desperate measures), and when a dealer exits the business (not just the SF business, but closes altogether), that means liens aren’t perfected and the finance companies have no way to collect any items such as cancelled service contracts, GAP, insurance or other products.

In a time where SF managers can’t understand why finance companies aren’t loosening the reigns with all the stimulus money being handed out, finance companies are forced to focus on their dealer partners to make sure that those they work with are indeed the ones they want to partner with.

Dealers can expect finance companies to audit their portfolios of business frequently, to continually monitor their time to perfect liens or make trade payoffs, and to even begin to request complete financial statements (even from franchise dealers) to continue business relationships, at least until the remaining finance companies get a sufficient level of comfort of the financial strength of the dealers they are working with. Finance companies will have to find a way of having dealers submit these statements other than giving them to the local rep who frequents their store, and all the other stores in the same market, in order to prevent a potential firestorm.

All in all, I came away from these meetings at NADA with more confidence in the top companies serving the SF industry, and with much greater confidence that the major shakeout that occurred in 2008 with the departures of HSBC, Triad, Nuvell and National Auto Finance among the top players, and the dramatic scaling back of AmeriCredit and CPS will not continue into 2009. Currently, AmeriCredit is the one precariously on the bubble (and we all should be rooting for them), but past that, I have a good feeling for the companies and the SF market for the year ahead. Now is the time to sharpen your skills to take advantage of the opportunities that exist ahead, not sit and long for the days of yesteryear.

Until next month,
Great selling!