full spectrum lending

8/14/2019 Full Spectrum Lending

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2008J.D. Power and Associates,The McGraw-Hill Companies, Inc.All Rights Reserved.

Full-Spectrum Lending

Non-Prime Auto Financing ConferenceJune 5, 2008


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2008 J.D. Power and Associates,The McGraw-Hill Companies, Inc.All Rights Reserved.

Syndicated Study

2007 Dealer Financing Satisfaction

Study

Dealer feedback on more than 40

automotive finance providers

Evaluates all aspects of Dealers

experience origination through

termination

Lenders evaluated in 1. Prime

Retail Credit 2. Sub Prime Retail

Credit 3. Retail Leasing 4. Floor

Planning 5. AccountManagement

Power Information Network (PIN)

Actual Franchised Dealer

transaction data captured from

their DMS

10,000 + dealers reporting more

than 5 Million transactions

annually

Includes: New and Used

transactions

Vehicle data

Consumer data

Trade in data

Finance contract data

Credit score

Information Sources


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FICO Scores in J.D Power and Associate Categories

Categories

1. Prime: > 680

2. Near Prime: 625 to 6793. Sub Prime: < 624

FICOis a registered trademark of Fair Isaac Corporation


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Background


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Drivers of a Full-Spectrum Business Model

* Projection based on JD Power forecasted data

Total U.S. New Vehicle Sales*

2005

18

16

14

12

10

VehicleSalesinMillions

17M

Year of Vehicle Sale

2006 2007

16.5M16.1M

2003 2004

16.9M16.6M

2002

16.8M

2001

17.2M


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What is Full Spectrum Lending?

Prime

Subprime

Merger/Acquisition

OrganicGrowth

UPSTREAM

DOWNSTREAM


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Down

Stream(Prime to SubPrime)

Full SpectrumLending

Up-Stream

(Sub Primeto

Prime )

MidStream

There is More !


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Cumulative Report: Q1 2007-2008

0%

5%

10%

15%

0 520 540 560 580 600 620 640 660 680 700 720 740 760 780 800+

Non Captives Upstream Downstream Midstream

Full Spectrum Provider Business Mix : by FICOScore

FICOis a registered trademark of Fair Isaac Corporation Source: J.D. Power and Associates PIN Navigator data

Sub Prime Near Prime Prime


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What is the current statusof full-spectrum lending?


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2 Million unit sales decline since 2005

* Projection based on JD Power forecasted data

Total U.S. New Vehicle Sales*

2008

14.9M

2005

18

16

14

12

10

VehicleSale

sinMillions

17M

Year of Vehicle Sale

2006 2007

16.5M16.1M

2003 2004

16.9M

16.6M

2002

16.8M

2001

17.2M


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Subprime"2007 Word of the year American Dialect Society

What a year for Subprime


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Upstream(Sub-Prime to Prime)

Challenges for UPSTREAM Lenders

Liquidity

Price

Risk

Processes

Relationship


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Credit

Personnel

24%

Finance

Provider

Offering

30%

Termination

Policy/Service

22%Application/

Approval

Process24%

Dealers want more than just Offering in PrimeRetail Credit

Prime Retail Credit

2007 Dealer Financing Satisfaction Study - weights


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800 900 1000

Credit Unions

Independents

Banks

Captives

Captive Advantage

Offering 30% Credit Personnel 24%

Application/Approval Process 24% Termination Policy/Service 22%

Prime Retail Credit Index Score by Segment


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Downstream(Prime to Sub-Prime)

Challenges for DOWNSTREAM Lenders

Portfolio

Price

Risk

Processes Relationship


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68% of Dealer Satisfaction is People / Process &Policy in Sub Prime Retail Credit

Credit

Personnel

23%

Finance

Provider

Offering32%

Termination

Policy/Service

20%Application/

Approval

Process24%

Sub-Prime Retail Credit

2007 Dealer Financing Satisfaction Study - weights


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500 600 700 800 900 1000

Termination

Policy/Service

Application/Approval

Process

Credit Personnel

Offering

Overall SatisfactionDownstream

Mid-Stream

Upstream

Mid Stream Lenders are the Bestin Sub-Prime Retail Credit Satisfaction

Source: J.D. Power and Associates 2007 DFS Study


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Satisfying Dealers Pays Off

RETAIL CREDIT: FUTURE BUSINESS WITH PROVIDER

Very

Dissastisfied

Somewhat

Dissastisfied

Neutral Somewhat

Satisfied

Very Satisfied

Increase

FutureBusine

ss

Mean

IndexValue

Source: J.D. Power and Associates 2006 Dealer Financing Satisfaction StudySM

Overall Satisfaction Rating

Low

High

Low

High

Overall

Satisfac

tion


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Dealer-Lender Dynamic

Dealer Lender

Move the Metal

Sub Prime CustomerBase Growing

Losing Customers?

Grow / Profitability vs. Risk

How much Sub primebusiness do I want?

How deep can/should I buy?

MarketConditions


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Q1: 2007 vs. 2008

0%

5%

10%

15%

0 520 540 560 580 600 620 640 660 680 700 720 740 760 780 800+

Non Captives 2007 Non Captives 2008

Downstream 2007 Downstream 2008

Downstream Provider Mix by FICO Score




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Q1: 2007 vs. 2008

0%

5%

10%

15%

0 520 540 560 580 600 620 640 660 680 700 720 740 760 780 800+


Upstream 2007 Upstream 2008

Upstream Provider Mix by FICO Score




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Q1: 2007 vs. 2008

0%

5%

10%

15%

0 520 540 560 580 600 620 640 660 680 700 720 740 760 780 800+


Midstream 2007 Midstream 2008

FICOis a registered trademark of Fair Isaac Corporation

Midstream Provider Mix by FICO Score

Source: J.D. Power and Associates PIN Navigator data



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RiskGrowthProfitability

Where is Full Spectrum Lending Headed?


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General RetrenchingEvaluate Current Business Model (ERM?)

Re Focus on Core Business

Reward > Risk

Short Term


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Upstream Lenders

Opportunity will be in own back yard

Will Concentrate on Profitability rather than Growth

Midstream Lenders

Opportunity will be on higher end Sub Prime

Will see core business pushed to opposite sides

Downstream Lenders Best Opportunity for Full Spectrum Growth

Will Focus on Prime


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Download this presentation at:www.jdpower.com/corporate/finance/library.aspx

Questions:

[email protected]
http://www.jdpower.com/http://www.jdpower.com/


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2008 J.D. Power and Associates,The McGraw Hill Companies Inc

Lower Rates are becoming more available

8.0%9.3%

10.0% 9.5%8.8%

0%

2%

4%

6%

8%

10%

12%

2004 2005 2006 2007 2008

New and Used Vehicle APR

full spectrum lending

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