Why Now is the Best Time to Invest in Your Subprime Department

With 40 percent of Americans qualifying as having poor credit, how can you as a dealer afford not to invest in your dealership’s subprime department? Having been in the business since 2003, I have seen the best of times and I have seen the worst of times, and now is the time to invest in your subprime department because we are on the verge of a best-of-times scenario.

For one, the average national credit score is down. Second, General Motor’s recent purchase of AmeriCredit – a finance company that focuses on credit scores from 500 to 650 – and lastly, the recent Senate vote to exempt car dealerships from the Consumer Financial Protection Bureau all give evidence that now is the time to invest in your subprime department.

The national credit score is down because many Americans defaulted on their interest-only and variable-rate mortgages. On average, nationally, consumer credit scores dropped to 669 in January 2010, according to a Credit Karma report on February 10, 2010. This was the first time the national average credit score fell below 670 in over a year. Louisiana credit scores dropped from 645 to 639, Michigan from 662 to 657, Missouri from 663 to 656. With a significant percentage of Americans with bad credit, dealerships have no choice but to invest in their subprime department.

People Are Paying Their Bills
What is mind-boggling about this is that although credit scores are falling, people are still paying their bills. Credit Karma (a Web-based credit score tracking company) also measured and reported the national average credit card debt. Can you believe it decreased by two percent nationally from December 2009 to January 2010?

Consumers in four states paid down their credit card debt by more than five percent (Kentucky, Minnesota, Oregon, and West Virginia).

This gives evidence to support the claim that your special finance manager has to look past the credit score and into the real value of a consumer’s rating. Many people who have bad credit are still paying their bills and are worthy of car financing. Even though they may have defaulted on their mortgage three months in a row (due to interest-only and variable-rate mortgages) this doesn’t mean they won’t pay their car loan. I cannot emphasize this enough.

GM’s Recent Purchase of Subprime Finance Giant AmeriCredit
The second reason why now is a perfect time to start investing in your subprime department is the recent news of the auto giant General Motors’ purchase of AmeriCredit, a leader in subprime lending, for $3.5 billion. For years dealerships have been complaining that they were losing deals and sales due to the lack of financing options. GM was listening and bought this giant subprime finance institution to provide a modest boost in subprime loans.

This deal is intended to help the automaker sells more cars to customers with damaged credit ratings. And for those who aren’t GM dealers, AmeriCredit will continue to do business with non-GM dealers, said AmeriCredit CEO Daniel Berce on a recent conference call. I believe you will see more automakers investing in subprime financing in the years to come. With the number of Americans who have poor credit, how can you afford not to invest in your subprime department?

The Recent Senate Vote to Exempt the Auto Industry from the Consumer Financial Protection Bureau (CFPB)
One of the most interesting reasons supporting the idea of investing in your subprime department is the recent senate vote to exempt the auto industry from the CFPB. Exempting car dealers who facilitate loans from oversight by the proposed CFPB is evidence that subprime financing is on its way back. According to the OpenCongress Blog, many people, including Senator Sam Brownback (R-KS), believe that “dealer financing is fair and sound, and that regulating it would decrease financing access for consumers.” I agree the auto industry is America’s bread and butter, and further regulating it will only serve as a deterrent and stifle the process.

Invest in your dealership’s subprime department. Get the banks, get the inventory, and don’t sit on your leads. Floor traffic is up, and more consumers than ever have bad credit. However, they are good people who pay their bills. Also, banks are starting to loosen up their financing in the subprime auto industry. GM buying AmeriCredit only serves as evidence and notice that automakers are investing in subprime financing again. GM wants to improve its financing capacity, so it bought AmeriCredit. Get those banks, and develop and nurture your relationships with them. Build up that rapport. Lastly, track your progress and watch as your subprime department grows exponentially.

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