While most economic indicators, from the official unemployment rate to the Dow Jones Index, point in a positive direction these days, many consumers still struggle with financial challenges
That’s the findings of a pair of recent surveys.
One of these, the Consumer Financial Stress Index from LegalShield, worsened to 90.8 from 90.4. This follows a 3.4 point increase in August.
The Index provides a read on the well-being of consumers based on the demand for certain legal services.
Though consumer finances are generally healthy, the Index predicts that spending will decline in coming months, said James Rosseau, LegalShield's chief commercial officer.
"Consumer spending accounts for a huge portion—more than two-thirds—of the U.S. economy," Rosseau said. "Although we're not expecting a poor retail season ahead, decision makers who are counting on a banner year for retail spending might be disappointed."
The LegalShield findings come on the heels of a negative report from the Consumer Financial Protection Bureau on the state of consumers.
Results from the CFPB’s national survey on the financial well-being of U.S. consumers that showed that more than 40 percent of U.S. adults struggle to make ends meet.
Of the nationally representative sample of consumers surveyed, 43 percent of consumers report struggling to pay bills. Additionally, over one third – 34 percent –of all consumers surveyed reported experiencing material hardships in the past year.
The buy-here, pay-here business might end up the hardest hit used-car segment from the recent hurricanes.
Ken Shilson, founder of the National Alliance of Buy-Here, Pay-Here Dealers said the performance of in-house finance portfolios following other storms shows they take a major hit.
“The loses on the portfolios in some cases were absolutely horrific,” he said.
One the biggest challenges will be replacing lost vehicles.
While the industry is grappling with an excess of late-model units, the older cars buy-here, pay-here dealers specialize in are in short supply.
“We’re not going to be able to easily replace that inventory,” Shilson said.
The NABD is doing its part to help those dealers affected by the storms.
A portion of the proceeds from its upcoming conference in Orlando, Fla, will aid those in need.
After more than three decades in the buy-here, pay-here business, William H. "Hank" Henderson is retiring.
Henderson will step down as CEO of America’s Car-Mart on Dec. 31. President Jeff Williams will move up to fill Henderson’s role.
Henderson spent the last10 years leading the Bentonville, Ark.-based buy-here, pay-here chain. Prior to that, he served the company in several roles, including chief operating officer and President.
“I feel truly blessed to have had this opportunity,” Henderson said.
Henderson will remain a member of Car-Mart’s board and have the title of CEO Emeritus.
Williams joined Car-Mart 12 years ago. He has been President since 2016 and chief financial officer since 2005. I too am very excited about our future and look forward to helping the Company grow as we support our customers by providing a higher level of service than competitive offerings," Williams said.
Prior to joining the company, Williams spent approximately seven years in public accounting with Arthur Andersen & Co. and Coopers and Lybrand LLC in Tulsa, Okla., and Dallas. His experience also includes approximately five years as chief financial officer and vice president of operations of Wynco LLC, a nationwide distributor of animal health products.
Williams takes over at a time when America’s Car-Mart has been struggling following years of rapid growth.
The company is focusing on productivity improvements for existing dealerships to take back some market share. Car-Mart is also investing in general manager recruitment, training and advancement as well as collections support.
Williams said these investments “will help allow us to confidently grow and leverage our costs over time."
“We are excited about our future, and we are committed to our continued success,” Williams said.
Investors seem mixed in their reaction, as Car-Mart’s stock continues to experience large fluctuations.
A year ago, industry veterans Tom Stewart and Richard Curtis launched Auction Management Solutions Inc (AMS) to provide consulting services to the automotive industry.
This past year AMS has seen explosive growth in its core business, adding independent auto auctions, service providers, and vendors.
“Richard and I are humbled by the success we have achieved in such a short period of time”, Stewart said. “We started this firm to deepen relationships between consignors and our clients, and to illustrate that independent auctions can and will continue to provide all the services consignors have come to expect”.
AMS currently represents 17 auctions across 14 states, with new locations being added steadily. The latest addition is Rea Brothers’ Mid-South Auction in Pearl, Miss.
“We are confident that our new working relationship with AMS is going to provide real dividends for our auction,” , John Rea, the auction’s managing partner.
The main focus of AMS is to provide strategic business development services, with an emphasis on processes, profitability and exposure that aid in the growth and success of the client/partners. “It is our intent to keep our clients on the forefront of the automotive remarketing industry by maintaining a comprehensive and competitive suite of services”, Curtis said.
AMS recently announced the addition of two additions to their staff.
Jamye Carpenter was brought on board in April as vice president of business development.
More recently, Shelly Frank came on board. Frank birngs more than 25 years of experience in the auto finance and wholesale auto auction industry.
Frank previously served as loss mitigation operation manager of Fireside Bank, and as vice president of business development with North Bay Auto Auction. She continues to work with North Bay on projects as a consultant.
Frank has also been active in the Western Chapter of the National Auto Auction Association.
“Both of these women bring years of experience, a wealth of industry knowledge, and contribute diverse areas of expertise to the team, allowing AMS to provide all manners of service to our partners”, Stewart said.
“AMS looks forward to many successful years of working with our clients and providing services to, and for, the entire industry.”
The industry is in a state of transition and dealers are uncertain about the best way to move forward.
Take the issue of whether or not to finance their own sales.
Michael Darrow, owner, The Auto Traders in Durham, N.C., said about 40 percent of his sales are subprime deals.
Darrow also “dabbles” in buy-here, pay-here. Lately, he’s been increasing the amount of paper he keeps for himself, doing two or three buy-here, pay-here deals a month out of 38 sales.
“The lenders have tightened up a little bit, which is where we’ve seen more opportunity for buy-here, pay-here,” Darrow said. “Now a lender says, ‘That’s a $900 fee,’ that’s when we’ll keep it in-house.”
Rex Echer, owner, The Car Shoppe, Salina, Kan., is acting like one of those finance companies.
His store used to be evenly split between straight retail and buy-here, pay-here. Now retail sales make up 70 percent of the business.
“ It’s a little safer,” Echer said.
A major issue for Echer is a lack of quality inventory.
“It’s harder to find anything with good mileage,” he said. “For the buy-here, pay-here stuff, I don’t know what good mileage is anymore. Maybe 150,000 or less.”
This drives up the recon costs.
Executives at CarMax Inc. attribute the company’s success to a pretty simple idea: selling what people want.
They said the mix of vehicles positively impacted their earnings in the company’s latest quarter. CarMax reported net earnings growth of 20.7 percent in its latest quarter.
The vehicle mix improved compared to last year’s offerings. Their percentage of sales in large and medium SUV’s and trucks rose to 27 percent, which is about three points higher than the prior quarter.
“So even last year, when we were little bit lower in large SUV’s and trucks, we were still putting what folks wanted to buy and what were also a good deal for them,” said CarMax CEO Bill Nash. “So I think the supply has increased on these vehicles and has driven price down somewhat but again we’re going to buy what the consumers want.”
The company’s new online appraisal initiative helped CarMax stock the right vehicles. The online system allows customers to receive a value for their vehicle before coming into the store.
CarMax executives view buying inventory directly from consumers as a better value proposition.
“It is more profitable than buying it off-site so we’re always trying to drive as much as possible through the line but even given this quarter where we were allowed a little more off-site purchases because the volume, we’re still able to maintain gross profit per unit,” Nash said.
Even though CarMax is stocking more SUV’s and minivans, the average selling price remains down a bit. Nash said that this could be attributed to the acquisition prices.
“I think this speaks to the execution that the stores are doing and the great things that are buyers do, making sure that they’re getting the best price and really at the end of the day that’s really where it starts,” Nash said. “You have got to buy the vehicles at the right price so lower acquisition prices more than offsetting the increase that you would normally see from the mix shift.”
Used-car chain Carvana is seeing strong growth thanks in part to its unique marketing, but also because of an old-fashioned basic of the business – financing.
The Phoenix-based company is most famous for its so-called vending machines, vertical structures that house cars and use an automated system to bring them down to buyers.
The first vending machine debuted in Nashville in 2015. Carvan now operates four total and plans on adding more as it moves into new markets.
CEO Ernie Garcia said the vending machines are a great investment.
“I think some of the brand assets, such as the vending machines, are a very important part of telling that story as well as establishing credibility because when you drive (and see) the big car vending machine, it gives you the sense that there is a real company underneath it,” Garcia said.
However, the facilities also represent a fairly large investment.
“It is the most operationally and capital-intensive thing that we do,” Garcia said.
“It means acquiring a vending machine site, going out and finding a location, negotiating a deal with the land owner, going through entitlements with the city, and getting approved, and then physically building the space itself.”
As Carvana grows, Garcia said word of its unique process is spreading. In addition to the unusual delivery method in some markets, Carvana conducts almost all of its transactions online.
Garcia said new markets that are in close proximity to existing markets ramp up faster than totally new markets.
National advertising on cable networks will play a large part in creating awareness of what the company does to make these fresh markets grow faster, Garcia said.
He said cable advertising makes sense as the company grows larger and that broadcast advertising will follow as it expands even more.
In the end, financing matters more to most car buyers more than a cool delivery gimmick like the vending machines or ads on TV.
Carvana is doing very well in this area, setting up financing for approximately 70 percent of its customers.
Mark Jenkins, Carvana’s chief financial officer, said technology helps there, as well.
“I think (that is) a number that’s enabled by the technology that we’ve built to provide a very seamless experience to customers who could very easily fill out a credit application form on their phone or desktop, and select from a wide variety of financing options that we make available in a very transparent way,” Jenkins said.
There was a time when buy-here, pay-here dealers wanted to report to the consumer credit agencies and they couldn’t because their volumes were too low.
Now they can, but many are growing unsure if they should.
Regulations created in the past few years aim to allow smaller creditors, such as dealers, to provide information on their customers.
This seemed like a great new opportunity at first, but many buy-here, pay-here dealers are finding it comes with risks for both them and their customers.
Brent Carmichael, a Twenty Group Moderator for NCM Associates, said most his dealers are looking to get away from credit reporting and a few actually have.
There are many reasons to offer credit reporting. John Giamalvo, Equifax’s vice president of dealer service, said millenials are especially aware of credit scores and see them as a reason to do business with a creditor.
The key is making sure the process is done right.
Giamalvo said the Consumer Finance Protection Bureau has published several guidelines on how to properly report consumer credit.
One easy way to get in trouble is by offering more than you can deliver.
“If you promise to repair your customers’ credit, you are inviting in the CFPB,” said Ken Shilson, founder of the National Alliance of Buy-Here, Pay-Here Dealers.
One risk for dealers is that some dealer management systems automatically forward information to the bureaus, increasing the chance of wrong information winding up in a report.
Dave Brotherton, a Twenty Group moderator with the National Independent Automobile Dealers Association, warned there is also a chance subprime finance companies will use the data supplied to the credit bureaus to poach buy-here, pay-here customers.
Nick Markosian, owner of Markosian Auto Sales in Taylorsville, Utah, said he reports to the bureaus. But he does this because he also offers outside credit and moves customers off his own books when their scores improve.
Payment assurance technology providers are preparing to fight back a new wave of legislation aimed to curb the industry following yet another negative press report.
This time the bad press comes from CBS News, which aired a story that featured a couple whose car was shut off while at a dialysis treatment.
The piece ran on several network affiliates.
Corinne Kirkendall, vice president of compliance and public relations at PassTime, said she expects the same pattern as when the New York Times ran a negative article about the devices.
“About every two years we get an uproar,” Kirkendall said. “We go back and we re-educate everybody.”
This past year that effort included helping to shape a bill in New Jersey that started as much more harmful to the industry, its clients and their customers.
“We’re all for responsible legislation, but we’re not all for legislation that takes away the consumer’s ability to get into a car,” Kirkendall said.
The good news is legislators are moving toward making sure the industry uses best practices rather than banning the devices outright, said Nicole Munro, an attorney with the law firm Hudson Cook.
“The legal status of the (payment-assurance) industry isn’t in jeopardy,” Munro said.
The challenge for the industry is the lack of a main regulator. There have been laws considered in a half dozen states and an investigation by the Federal Trade Commission.
This keeps some large financial institutions from using the devices.
“If there were a regulator that says, ‘This is how to use them,’ they can better assess the risk,” Munro said.
The future is not guaranteed.
Sonic Automotive Inc. set an all-time record for quarterly used retail unit sales of 30,933, up 1.5 percent over the prior year quarter.
Sonic also announced the expansion of its EchoPark used-car superstores is continuing with two new stores operating during the third quarter. The company reported that the original three stores generated positive cash during the third quarter.
The sixth Colorado store, located in Colorado Springs, will open during the first half of 2017. In addition, Sonic will break ground on its first Texas location in the first half of 2017.