The CEO of DealerStrong, Greg Goebel, talks about the health of the special finance industry and shows statistics of the top finance companies of 2016.

1. State of the Special Finance
Industry
May 2016
DEALERSTRONG
Greg Goebel, CEO

2. What Was 2015 Like?

3. Retail Sales Records, Subprime Loans Up, but
Delinquencies Rising
New retail auto sales 17.47M in 2015
• 2016 predicted to be flat or slight decline
Since 2010 growth in SF industry exceeded retail growth rate.
$220+ billion in 2015 in SF loans (<660 CB score).
Collections weakening – Some third tier companies struggling to
collect.

4. Pundits Claim Sky is Falling!

5. The Real Issues
Lot’s of chatter on street – started July 2014.
Some auto finance company will likely fail.
• 3rd tier is really tough area.
• Volume comes from deep subprime, similar to BHPH.
• Rates rise, yield squeeze, little margin for error.
One fails, ABS pricing could soar.
Tight yields, falling used prices will slow the market.

6. Does a Bubble Really Exist?
Subprime auto and subprime mortgage: NOT the same.
Mortgage loans are 10x auto loans.
Danger signs do exist :
• Longer terms – some up to 84 months.
• New vehicles to deep-deep subprime.
• Delinquency rates highest in 6 years.
• Wholesale prices on used weakening.

7. My Prediction
2016 new vehicle SAAR will fall to mid-16M.
Chatter becomes self-fulfilling prophecy.
Banks/finance cos./credit unions tighten throughout the year.
Falling used prices will cause advances/LTV to fall
SF industry give back its year-over –year gained in 2015.
Minimum of one finance company defaults.

8. What Does that Mean for Dealers?
It is NOT 2009 all over again.
Tightening Credit: The bottom of SF Credit Tier 4 will rise.
Advances/LTVs will tighten some.
Lose 10% of your GP through volume and tighter margins.
Strong SF dealers will grow market share.
Be prudent – don’t bank on growth!

9. DEALERSTRONG
Special Finance Index
powered by ProMax Unlimited
Created in 2014 in conjunction with ProMax.
Made of millions of (blind) dealer transactions.
Special Finance Index contains four elements
• Credit Bureau score (how deep companies are buying)
• Deal advances (how much companies are paying)
• Total deal gross profits (how much are you earning)
• Overall deal volume (market growing/shrinking)

10. DealerStrong’s
National Credit Tiers
681+ 680 -
621
620 -
576
575-
521
520 -
476
475 -
100
0
Special Finance
Prime
Near
Prime
Tier 1 Tier 2 Tier 3 Tier 4
No
Score

11. DEALERSTRONG Special Finance Index
80
90
100
110
120
130
140
150
160
170
Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16
CB Score Index Vol. Index Advance
Gross Profit Index SF Index Linear (SF Index )

12. SF Deal Gross Profit Trends
Relationship of Vehicle and F&I Gross Profits.
• Average F&I Gross profit now exceeds Veh. Gross!
• Average F&I GP climbed from $635 in 2012 to
$1,235 in September 2015 to $1,322 today.
• SF Tier 4 GP average now exceeds 2012
benchmark.
• Good? Shifts risk to dealers with F&I chargebacks.

13. Average Total Deal
Gross Profit Trends
$-
$500
$1,000
$1,500
$2,000
$2,500
Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16
$1,302
$1,311
$1,111
$1,256
$1,150
$963
$883
$1,100
$1,084
$1,097
$1,050
$1,168
$1,203
$1,235
$1,243
$1,195
Veh. Gross F&I Gross

14. Credit Quality Shifting Down
SF Tier 1 (620 – 576) down 20% in 1Q2016
No-Score Tier now 19% of SF in 1Q2016.
SF Tier 4 (< 475 CB) was 8%+ in 1Q2016.
• 1St time ever that Tier-4 & Tier NS > 25% for quarter.
Sale price continues to rise – longer terms.
Negative equity up, so payments about the same.

15. Relationship of Sales Among
Special Finance Tiers
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
90.0%
100.0%
SF Tier 1
SF Tier 2
SF Tier 3
SF Tier 4
Tier Zero

16. Comparing Average
and Benchmark Performance
Benchmark transactions look very
similar to average – vehicles sourced
much better.
Average
50%
Benchmark
75th
Percentile

17. New Vehicle Transactions
Credit Tiers
% of All
Deals
Avg Sales
Price Avg Miles Term. Paym.
Prime 62.7% $32,578 303 61 $ 446
Near Prime 621-680 18.4% $29,283 153 66 $ 492
Tier 1 576-620 8.3% $26,405 131 68 $ 502
Tier 2 521-575 5.6% $24,230 194 68 $ 476
Tier 3 476-520 1.8% $22,930 175 69 $ 463
Tier 4 100-475 0.5% $22,854 67 70 $ 459
No Score 2.7% $23,674 71 63 $ 408
Grand Total 100.0% $30,532 245 63 $ 460

18. Used Vehicle Transactions
Credit Tiers
% of All
Deals
Avg Sales
Price
Avg
Miles Term. Paym.
Prime 34.3% $20,419 48,436 68 $ 347
Near Prime 621-680 20.1% $17,683 55,199 68 $ 364
Tier 1 576-620 14.2% $16,291 55,394 67 $ 378
Tier 2 521-575 13.1% $15,425 57,152 66 $ 383
Tier 3 476-520 6.2% $14,877 59,873 64 $ 387
Tier 4 100-475 2.7% $13,604 68,783 61 $ 367
No Score 9.4% $13,788 63,784 63 $ 333
Grand Total 100.0% $17,476 54,630 67 $ 361

19. New Vehicle Comparison
Average Transaction (50%) Benchmark Transaction 75th Perc.
Credit Tier FE Gross BE Gross Total FE Gross BE Gross Total
Prime $491 $1,292 $1,783 $1,355 $1,553 $2,908
Near
Prime
$381 $1,826 $2,208 $1,203 $2,256 $3,459
Tier 1 $200 $1,654 $1,854 $1,538 $2,030 $3,112
Tier 2 $58 $1,536 $1,594 $937 $1,799 $2,735
Tier 3 $137 $1,387 $1,520 $1,034 $1,645 $2,679
Tier 4 $(186) $1,785 $1,599 $876 $1,760 $2,637
No Score $(220) $1,558 $1,337 $915 $1,559 $2,474
All Tiers $393 $1,445 $1,839 $1,299 $1,738 $2,999

20. Used Vehicle Comparison
Average Transaction (50%) Benchmark Transaction 75th Perc.
Credit Tier FE Gross BE Gross Total FE Gross BE Gross Total
Prime $1,556 $1,347 $2,903 $2,487 $1,604 $4,091
Near
Prime
$1,587 $1,540 $3,126 $2,499 $1,721 $4,220
Tier 1 $1,538 $1,284 $2,821 $2,417 $1.478 $3,895
Tier 2 $1,493 $1,052 $2,544 $2,2354 $1,211 $3,566
Tier 3 $1,498 $862 $2,360 $2,395 $1,043 $3,428
Tier 4 $1,407 $660 $2,067 $2,222 $724 $2,945
No Score $1,521 $973 $2,494 $2,388 $1,106 $3,495
All Tiers $1,521 $1,254 $2,794 $2,437 $1,453 $3,892

21. In Summary
2016 tightening market looks favorable, but be prudent.
If your F&I gross profits are weak, stop accepting excuses.
• Bad processes in store.
Ongoing ebb and flow of auto finance companies.
Tier Zero & Tier 4 will slow down as market tightens.
Treat your finance companies as partners.
• Deals should make sense and audit for fraud.

22. Thank You. 
For More Information:
 Visit http://www.dealerstrong.com/
 Call our office @ 877-811-8107