Path to Success Runs Through Finance

June 3, 2019


As the old saying goes, it takes 30 days to get into an inventory problem, but it takes a minimum of 90 days to get out of one. Given some of the chatter about further tightening in auto finance this year due to rising delinquencies, steering away from trouble in 2019 and beyond may require more than a good grasp of what does well in your market.

The New York Federal Reserve Bank raised alarms in February when it reported that a record seven million Americans were 90 days delinquent on their auto loans to close out 2019. Experian provided some perspective 16 days later, reporting that only about 3% of the 89 million active automotive loans and leases were 30 or 60 days delinquent by the end of the year.

I’m not going doom and gloom on you, but the media and some industry insiders have been predicting further credit tightening this year since growing delinquencies and losses caused banks to pull back from subprime in 2016. That tightening culminated in subprime auto loans plunging in the third quarter of 2018 to their lowest level in 11 years.

Guidelines have since loosened, with the New York Fed reporting that the share of loans made to car buyers with subprime credit inched up in the first quarter from 18.9% to 20.1%.

What I’m getting at is what happens in finance needs to be part of your inventory strategy, especially as the pendulum swings more toward pre-owned thanks to record-high, new-vehicle transaction prices.

That means you need to get with your finance sources and ask them how they advance on a vehicle, what books they reference, and what the term will be for mileage. I’d even suggest taking a page out of special finance guru Greg Goebel’s playbook and conducting a credit bureau analysis. What you need is a credit tier profile on your customers.

Then let all that research guide your inventory sourcing strategy, even if it means passing on a vehicle you can buy right. Otherwise, your customers will pay in the form of down payment or trade equity if the vehicle doesn’t meet the guidelines of your finance sources.

This content may express opinions and ideas that are not intended to be official statements from DealerSocket, Inc.