Latest Online Edition  Read Here

Opportunities Appear for Buy-Here, Pay-Here, But Challenges Remain

Opportunities Appear for Buy-Here, Pay-Here, But Challenges Remain Featured

Many industry observers look at the conditions likely in 2017 and see opportunities for buy-here, pay-here dealers.

They expect a lessening of the two biggest challenges faced by the segment – high wholesale prices and competition from finance companies.

A combination of surging off-lease volumes and trade-ins from nearly 17 million new-car sales are forcing down wholesale prices already, said Anil Goyal, senior vice president of operations for Black Book.

These lower wholesale prices, along with an increase in delinquencies, have led to some finance companies cutting back on originations for the lowest credit tiers.

All this appears on the surface to favor buy-here, pay-here dealers.

“Now they have an opportunity because they know their customers and they won’t be competing on price,” Goyal said.

But a deeper look shows these moves aren’t big enough to really help, said Brent Carmichael, a buy-here, pay-here consultant with NCM Associates.

“Nobody is looking for a stellar 2017,” Carmichael said.

First, there is the matter of those wholesale prices. They are coming down, but from historically high levels.

“That’s not enough to make a dramatic difference,” Carmichael said.

Competition from subprime finance companies remains strong as well, even as some creditors tighten. There remain plenty of options for consumers, Carmichael said.

This creates a consumer who is apathetic about whether or not he makes payments on his vehicle purchase. He knows he can get financed somewhere else.

A third major challenge that buy-here, pay-here dealers have faced in recent years is increase regulatory scrutiny.

Some are holding out hope for a more relaxed approach to regulation with the changes taking place in D.C. this year. But attorney Michael Benoit cautions that those hopes are premature.

“The message I would send to dealers is: Don’t get too excited,” Benoit said.

The dealers’ least favorite regulator, the Consumer Financial Protection Bureau, does face challenges to its authority from both the incoming administration and the courts. But the CFPB remains fully operational.

And even if the CFPB somehow suspends its operations, Benoit said attorneys-general and private attorneys are ready to step in and fill the void.

“Just because you won’t be getting attention from one area doesn’t mean you won’t be getting attention from another,” Benoit said.

One matter is clear for buy-here, pay-here dealers in 2017, and that’s a later tax season.

The Internal Revenue Service recently reminded taxpayers that a new law requires the IRS to hold refunds until mid-February for people claiming the Earned Income Tax Credit or the Additional Child Tax Credit.

The IRS must hold the entire refund – even the portion not associated with the EITC and ACTC.

 

In addition, new identity theft and refund fraud safeguards put in place by the IRS and the states may mean some tax returns and refunds face additional review.

 

 

Last modified on Wednesday, 04 January 2017 19:21
Rate this item
(0 votes)

Related items

  • Used Vehicle Retention Rises

    Black Book’s Used Vehicle Retention Index for October increased to 114.6 from 113.9, its second straight monthly increase dating back to August when it was at 112.6. 

    The Black Book Used Vehicle Retention Index is calculated using Black Book’s published wholesale average value on two- to six-year-old used vehicles, as percent of original typically equipped MSRP. It is weighted based on registration volume and adjusted for seasonality, vehicle age, mileage, and condition.

    The last remaining expected replacement activity stemming from hurricanes Harvey and Irma drove continued vehicle valuation stability and shopping demand during the month of October.

  • Black Book Debuts Scenario-Based Data

    Black Book has released new Economic Scenario-Based Residuals, available to lenders and financial institutions with a portfolio of auto loans.
    Black Book has mapped regulatory prescribed scenarios for this new suite of residual data, enabling risk and portfolio managers the ability to analyze how vehicle values will respond under different macroeconomic Comprehensive Capital Analysis and Review (CCAR) and Dodd-Frank Act Stress Test (DFAST) scenarios as outlined by the Federal Reserve.
    Black Book has historically made available to auto lenders its projected wholesale residual values of vehicles under baseline and various scenarios. These models were built with extensive analysis of historical sales data taking into account impact from macro-economic variables, fuel prices, vehicle incentives, supply and demand in the used and new markets, and other criteria.
    Complying with the CCAR/DFAST requirements within existing quantitative models and a model risk management framework is one of the most daunting of the many recent challenges for financial institutions. These lenders have completed extensive work in predicting loss probability using a credit scoring model. However, a key component of loss in auto loans is the severity of loss, which is driven by the ability to predict residual values.
    Leveraging this new suite of collateral data with economic scenarios at a vehicle level will greatly enhance a lender’s ability to properly assess risk, and aid in evaluating capital adequacy.
    In addition to providing stress testing under CCAR/DFAST-driven scenarios including Baseline, Adverse and Severly Adverse, Black Book will also provide residual projections for custom scenarios such as a High Gas Price scenario.

  • Black Book’s Index Makes Large Gain

    Black Book’s Used Vehicle Retention Index rose to 113.9 in September from 112.6 in August.
    This is the largest month-over-month gain since March 2012.
    The Black Book Used Vehicle Retention Index is calculated using Black Book’s published Wholesale Average value on two- to six-year-old used vehicles, as percent of original typically equipped MSRP. The Index offers an accurate, unbiased view of the strength of today’s used vehicle market values.
    Hurricane Harvey caused major flooding throughout parts of Texas, resulting in an estimated 500,000 cars and trucks needing to be replaced. The replacement process began in September, with compact cars (2.8 percent), compact crossover SUVs (2.4 percent), full-size cars (2.5 percent), and midsize cars (2.3 percent) each seeing significant month-over-month increases within the Index.