NABD 2014 National Conference. Benchmarks and Industry Trends

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1 NABD 2014 National Conference Benchmarks and Industry Trends

2 About NCM Associates Pioneered the automotive 20 Group in 1947 Provide 20 Groups Education Consulting Benchmark Tools Data Management Solutions 100% employee-owned and headquartered in Overland Park, KS

3 NABD 2014 Industry Trends NCM Buy Here, Pay Here 20 Group Data Monthly data reporting Dealer client industry specific surveys Over $500 million in outstanding receivables Over 47,000 units sold

4 Sales Volume 14: -1.3% 13: -0.4% 12: +2.8% Profitability 14: -8.3% 13: -14.8% 12: +21.6% Tax Season Ups and Downs

5 Inventory Levels 14: 55 days supply 13: 51 days supply 12: 54 days supply Cost 14: +$398/unit 13: +$586/unit 12: +$198/unit Recon 14: +$1,006/unit 13: +$1,013/unit 12: +$1,304/unit Tax Season Ups and Downs

6 Collections Aging (30+) 14: 5.3% 13: 5.0% 12: 4.2% Losses 14: $4,865/account 13: $4,779/account 12: $3,482/account Tax Season Ups and Downs

7 2014 -???? Sales Collections Looking ahead

8 Questions? For more information: ncm20.com/bhph

9 Was 2013 A Bad Year For BHPH? Wednesday, May 21, 2014 The Wynn, Las Vegas, NV By: Ken Shilson, CPA President Subprime Analytics Booth #123 NABD

Stansberry predicted the financial crisis in 2008, the problems at GM in 2008, the failures of Fannie Mae and Freddie Mac, and others! 3.

10 Stansberry & Associates Investment Research 1. Founded in 1999 by Porter Stansberry. Based in Baltimore, MD. They are nationally recognized financial analysts and editors. 2. Stansberry predicted the financial crisis in 2008, the problems at GM in 2008, the failures of Fannie Mae and Freddie Mac, and others! 3. Their analysis is quoted in WSJ, Barron s, Washington Post and other leading publications. They provide financial opinions to CNBC, Fox Business News, and CNN. 4. They publish a monthly newsletter with over 100,000 subscribers. March 2014 issue was on Subprime auto loans. 5. Their financial research is considered credible!

11 Special Finance vs. BHPH? Who is Winning? These guys are borrowing money for around 2% and lending to subprime borrowers for 19% - a ridiculous spread Oh, and they re adding lots of leverage. (March 2014) Source: Stansberry & Associates Investment Research

12 The Greed Factor! And so, last year (2013), after three years of soaring loan amounts, collapsing lending standards, and expanding terms (loans up to seven years in duration), subprime car loans make up more than one in four loans made. Not surprisingly, $18 billion of car loans were securitized and sold to investors, thereby moving the credit risk from the finance companies to the investors. Sound familiar? Source: Stansberry & Associates Investment Research

13 Special Finance Auto Losses Increasing! Standard & Poor s released a report on February 26, 2014, warning that subprime auto loans were beginning to go bad at an alarming rate, before any material decrease to employment or other economic activity. In our opinion, we re at a turning point with respect to subprime auto loan performance, the credit-ratings agency wrote, similar to where we were in Source: Standard & Poors 2/26/14 Report On Subprime Auto Loan Performance

14 The Subprime Auto Market! The average auto loan today is for 65 months (about 5 years). Twenty percent of all auto loans are for durations between 73 and 84 months. Plus, the average dollar amount of these loans more than $26,000 is the largest ever recorded (March 2014) Source: Stansberry & Associates Investment Research

15 More Subprime Customers Today! Finally, the percentage of subprime borrowers is now at a record high 27% of all car borrowers. That s almost double the amount of subprime borrowers that were in the car market back in (March 2014) Source: Stansberry & Associates Investment Research

16 Opportunity Knocks for BHPH! Americans currently owe more than $800 billion dollars against their cars and trucks 34% of this debt is owed by subprime credits. Another 10% is owed by deep subprime folks with credit scores below 550. (March 2014) Source: Stansberry & Associates Investment Research

17 How is the aggressive underwriting in 2013 working out for Subprime Finance Companies?

22 What happened to BHPH Market Share in 2013?

23 An overview of the automotive loan market Source: Experian Automotive

25 Is Subprime credit risk being priced properly in customer payments and down payments?

27 Are BHPH Operators Maximizing Customer Payments? Average Weekly Payment Amount: $87 Average Weekly Payment Amount $87 $87 $86 $86 $85 $85 $84 $84 $83 $ Source: NCM/Subprime Analytics Source: NCM, Subprime Analytics Up 3% Since 2009!

28 Are BHPH Operators Maximizing Down Payments? Average Customer Down Payment: Average Cash Down Payment (Excluding Trades) $1,100 $1,050 $1,039 $1,033 $1,000 $950 $900 $959 $910 $887 $850 $ Average Down Payment Source: Subprime Analytics 17% Decrease Since 2009!

29 Are BHPH Operators Financing Larger Contracts? Average Amount Financed: Average Amount Financed $11,000 $10,689 $10,500 $10,000 $9,500 $9,488 $9,412 $9,667 $10,084 $9,000 $8, Average Amount Financed Source: Subprime Analytics Up 12% Since 2009!

30 Are the Term of BHPH Contracts Getting Longer? Average Original Term (Months) Average Original Term (Months) Months Year Average Original Term (Months) Source: Subprime Analytics Note: Average effective duration is 2-6 months longer than the original term.

31 What is the trend on in Cash in Deal? Average Vehicle Cost, Down Payment, Cash in Deal: Average Vehicle Cost, Cash Down Payment, Cash in Deal $7,000 $6,000 $5,000 $4,000 $5,029 $5,150 $3,990 $4,117 $5,466 $4,507 $5,582 $4,672 $6,181 $5,294 $3,000 $2,000 $1,000 $1,039 $1,033 $959 $910 $887 $ Average Vehicle Cost Average Down Payment Average Cash in Deal Source: Subprime Analytics ACV up 22%; CID Up 32%

32 Standard & Poors Ratings Services expects Subprime auto losses to rise in Source: S&P Auto Loan Performance Report 2/26/14

33 Maximizing Recoveries Has Never Been More Important In BHPH Success!

34 Mitigating BHPH Losses Has Never Been More Important! Average Recovery Dollars Per Unit: Average Recovery Dollars Per Unit $3,000 $2,971 $2,500 $2,000 $2,152 $2,286 $2,295 $2,437 $1,500 $1,000 $500 $ Average Recovery Dollars Per Unit Source: Subprime Analytics Recoveries up 38% since 2009.

35 What s ahead for BHPH Vehicle Inventory Supply?

36 Total Wholesale Supply: Off-rental, Off-lease, & Repos Peak to trough swing: 2.5M units -36% Source: Manheim Consulting

38 Don t miss presentations by Manheim and Tom Kontos tomorrow for updated information!

39 What did successful BHPH operators do in 2013? 1) Did not match silly special finance loans. Some integrated special finance and BHPH. 2) Used portfolio liquidation to reduce debt and increase financial flexibility. 3) Trimmed inventory carrying levels and reconditioning expense. 4) Controlled operating expenses by implementing technology to increase efficiency. 5) Expanded online marketing to connect with prospective customers. 6) Maximized recoveries to mitigate repo losses. 7) Worked on getting compliant.

40 Managing Credit Risk Is The Key To Subprime Success! You Must Match The Right Customers With The Vehicles They Can Afford Through Good Underwriting! Learn From Past Losses; Don t Repeat Them!

41 My Conclusion: Maybe 2013 will not turn out to be so bad after all!

42 Questions At this time you are welcome to ask questions on anything covered during this presentation Kenneth B. Shilson, CPA Subprime Analytics 2180 North Loop W., Ste. 270 Houston, TX Booth #123

Navigating the Road to BHPH Success Six Step Approach!

Navigating the Road to BHPH Success Six Step Approach! Presented by: Kenneth Shilson, President Subprime Analytics NABD May 25, 2016 Visit Booth #115 www.bhphinfo.com www.subanalytics.com Source: Experian