Others are sounding the alarm about the easing of standards. On Tuesday, Moody’s warned that the subprime auto lending market is seeing the same kind of heated competition and poor underwriting that drove unexpectedly high losses in the mid-1990s.
I am a used car dealer and finance my own accounts (BHPH). Nothing bad to say about NICK although there is no way any well established dealership with access to credit lines would work with NICK, the dings and discounts just too high for our deal. I totally concur with the Boston Globe article.
EXAMPLE: We are pretty loose with our underwriting if the customer is "close" in our trade area; however, it is most disturbing that the sub prime segment of lending is reaching some silly levels of risk. We had a customer come in with two BHPH Repo's combined with charge-offs from rent to own outfits and this customer has never paid a bill in his life. Even though the customer had MORE than I wanted for a down payment I turned down the deal. Would rather take less of a down stroke for a deal that I think would hold up. Anyway, this beat ended up buying a BRAND NEW Hyundai, the guy was angry at me for turning down his credit and he came by to "rub it in".... This poor sucker and lender is committed to a 72 month loan with a payment he will NEVER be able to make. I have only been doing this for the last 44 years and I have seen this before. Let me tell you ONE truth, with these customers the insurance is going to lapse and the car will be damaged and it isn't new and pretty anymore and the payment combined with high insurance make a default a self fulfilling prophesy. This type of sloppy underwriting comes and goes; we call it "no payments in your life time"; lots of new car dealers ruin future relationships with doing bad deals.
Hi Joeytheghost - W.r.t NICK you mention "the dings and discounts just too high for our deal". Its interesting to watch how NICK's dings-'n-discounts to dealers continue to erode in the face of brutal competition in this space now. NICK will sacrifice volume once their dings-'n-discount threshold is reached though, they won't chase crazy deals like your example; they are very good underwriters, even if the actual business model isn't that great.
I am wondering if you have had any experience with CACC as a lending partner and any views on them you could share? Their partner business model seems more in line with a dealer who would like to retain some origination risk and share the higher loan income and fees.