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.