Credit Acceptance vs Westlake Loan Economics
Former Director of Sales at Credit Acceptance
inpractise.com/articles/credit-acceptance-vs-westlake-loan-economics
Former Director of Sales at Credit Acceptance
The executive has over 25 years experience in auto subprime lending and spent nearly 8 years at CACC running Sales. The executive also has experience at United Auto Credit Corporation and Western Funding as VP of Sales.
Interview Transcript
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In this example, if I just work through the collections, the monthly payment, on a 59-month term, is $411. Take out the 20% service until Credit Acceptance receives their fees and advance back. If we assume the customer gets to 38, 39 months, the holdback is $4,200. It’s 30% of the original cash flow that they dealer receives.
If they were to pay 100% of the payments back, the dealer would be entitled to $19,409. They've already received $10,656 so that will be $7,800 potential for the dealer, but realistically that's not what they get back. The current collection rate is 65%, so $19,409 times 65% equals what number?
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What is the biggest mistake dealers typically make with their portfolio?
They jam everybody they can because they will all get an approval. They game the system by showing a bigger down payment and jack up the price even more, to yield the same amount financed. For example, if I show $2,000 down and I'm financing $15,000, I could show $4,000 down and still finance $15,000. I simply change the sales price, which tricks the system into thinking I have 25% down instead of 15%, which changes the risk of the deal. Dealers can sometimes drive up their advance that way.
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What was the most common way you saw dealers gaming the system?
Inflating the sale price and fluffing the down payment. They get a higher advance and make higher profit today. The other way was simply not properly reconditioning the cars. They put on a bad quality collateral from the get go, and then they will sell a warranty, but when the customer makes a claim, it's determined to be a preexisting condition and the repair isn't covered, so that customer defaults. Dealers are short sighted because they look at how they can make the most profit today, versus the long-term viability of their portfolio.
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