vision 2014: what happened to the auto loans you didn't fund
DESCRIPTION
This session will examine how several lenders have used automotive information to improve decisioning and reduce portfolio risk. Hear how top lenders are reducing look-to-book, improving attrition and reducing portfolio risk.TRANSCRIPT
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What happened to the auto loans you didn't fund … and the ones you did?
David Clatfelter CRB Auto
Andrew Wright Prestige
#vision2014
Melinda Zabritski Experian
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Discussion
What’s happening in the market
Case study: Prestige Financial Services
Case study: California Republic Bank
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0
10
20
30
40
50
60
2009 2010 2011 2012 2013
Millio
ns
New Used
Annual vehicle registrations
47.4 51.5
55.1
49.5 53.6
Source: Experian Automotive as of December 31, 2013 (U.S. light duty vehicles only)
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$695 $714 $703 $655 $634
$658
$719
$799
$-
$100
$200
$300
$400
$500
$600
$700
$800
$900
Q4 2006 Q4 2007 Q4 2008 Q4 2009 Q4 2010 Q4 2011 Q4 2012 Q4 2013
Bil
lio
ns
Total outstanding automotive loan balance
Source: Experian-Oliver Wyman Market Intelligence Reports
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11.27% 10.07% 9.44% 9.79% 13.00%
17.56% 18.33% 20.19% 21.46% 19.69%
18.61% 19.42% 20.33%
20.69% 21.16%
0%
10%
20%
30%
40%
50%
60%
2009 2010 2011 2012 2013
Deep subprime Subprime Nonprime
Returning and growing subprime market
Source: Experian Automotive
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What happens to the applications you don’t book?
Are you turning down applications that perform?
How can you improve your loan products to minimize loss and maintain completive edge?
Are you making the best application decision?
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Andrew Wright
Prestige Financial Services
What wasn’t funded
and how did they perform?
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The Larry H. Miller Group of Companies
The Miller Group includes: 50+ automobile dealerships in the western U.S. (collectively the nation’s tenth-largest auto retailer); the Utah Jazz basketball team (a member
of the National Basketball Association); EnergySolutions Arena; Jordan Commons (a 359,000 square-foot office and entertainment complex); eleven large movie theater
complexes (with a total of more than 180 screens securing a >60% market share); more than 100 Fanzz sports apparel stores in 20+ states; the Salt Lake Bees baseball
team (Triple-A affiliate of Major League Baseball’s Angels); Miller Motorsports Park (the longest closed road racing track in North America); Prestige and Rally; three
insurance companies; a TV station and a radio station; convenience stores; and numerous other real estate (3+ million sq. ft. of commercial facilities on 3,600+ acres) and
business ventures. PY figures are unaudited.
Founded: 1979
Headquarters: Salt Lake City, Utah
Total Assets 2013: $2.6B (2011 $1.74; 2012 $2.0)
Total Revenue 2013: $4.2B (2011 $2.6; 2012 $3.2)
Operating Companies: 110+
Employees: 10,000+
Miller Management Corporation
Governance, strategy,
acquisitions/divestitures,
finance/accounting, human
resources, etc.
Automotive Insurance Finance Sports props. Retail props. Real estate
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The basics
What is Prestige?
One of the most successful, resilient and respected names in subprime auto finance
Founded in 1994 as a Subchapter S Corporation Affiliate of the Larry H. Miller Group of Companies
$2.8 billion originated life-to-date, currently with $730 million active receivables (50,000 accounts)
Profitable (taxable income basis) every month since inception; FY2013 $58 million highest income to date
What does Prestige do?
Applies a proven, high-touch approach to originating and servicing “C” credit vehicle purchase installment contracts
Focuses on the niche of car buyers who have recently declared bankruptcy
Helps these buyers to improve their credit through the purchase of top-quality vehicles
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Prestige history
Methodical growth and continuous innovation
1994–1998
Founding and initial
growth within LHM
Group
1994 1995 1996 1997 1998
1998–2004
Expansion beyond LHM
and introduction of new
lending products
1999 2000 2001 2002 2003 2004
Initial originations and
product development
occurred while competing
for Larry H. Miller
subprime business with
national names such as
AmeriCredit, Onyx,
Capital One, et al
Pioneered lending to car buyers
who had filed for bankruptcy and
needed to purchase a vehicle
prior to the closing or “discharge”
of their bankruptcy case, and
expanded offerings to non-LHM
dealerships primarily within LHM
states
Change of
bankruptcy law in
2005 reduced
population of
bankrupt car buyers;
Prestige bought
upstream into “B”
credit segment while
expanding territory to
21 states
Territorial retrenchment,
followed by renewed focus
on core “C” credit, especially
consumers with recent
bankruptcies; Volume
pursued via expansion of
dealer base, territory
2004–2008
Continued
growth, regional
expansion
2005 2006 2007 2008
2008–2013
Back to basics,
revised growth
strategy
2009 2010 2011 2012 2013
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How competitive are we within our own sector?
How many deals are we losing to other companies?
► How many deals are going to our direct competitors?
Are our interest rates in-line with those of our competitors?
Do deals that we decline actually perform?
Why Auto Prospect IntelligenceSM
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Project overview
Return file
Analyze to see what is happening to our approved not book, and declined applications
Change policy and procedures accordingly
3
Determine a time period of applications that we want to compare
Most recent six months of approvals that were not booked
Twelve months of declines with 24 months of seasoning
1 Create the dataset
Append any data that can be used in segmenting the return file; detailed decline information is very beneficial
2
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Findings
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Where are the approved not booked deals going? Why?
Not picked up 36%
Banking 1%
Captive Asian 1%
Captive domestic 2%
Captive Europe 0%
Client 3%
Credit union 4%
Finance 22% Other 5%
Peer 26%
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Jan Feb Mar Apr May Jun
2013
Prestige Rate Peer Rate
After isolating our peer group and segmenting for our lending practices, we found our rates to be higher than our competitors
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What is the volume impact of our higher rates?
Having a higher rate than our competitors in the same risk sector will make us less likely to get a deal on pricing alone.
Is there more than just a volume effect?
The deals that we are able secure were probably as a result of adverse selection, so the performance will most likely be under that of the specific risk sector
Do our current rates affect the kind of deals that we are getting?
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Are some of our declined applications actually performing?
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Qtr3 Qtr4 Qtr1 Qtr2 Qtr3
2011 2012
0 1 30 60 90 120 150 180 480 490 Not Picked Up
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Which policies are excluding possible good customers?
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
Decline Reason 1 Decline Reason 2
0 1 30 60 90 120 150 180 480 490
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Changes
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Performed regional analysis on rate change and estimated volume impacts
Lowered rates based on region and monitor for any adverse effect
Adjusted policies to allow performing declines to be approved
Regional changes
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Digging into
the unfunded
David Clatfelter
Originations Risk Manager
CRB Auto
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California Republic Bank (“CRB”) is an FDIC insured and Federal Reserve Bank regulated California state chartered bank
CRB opened for business in the City of Newport Beach, California, on December 5, 2007
► CRB was the largest independent, full-service commercial bank ever formed in the history of California, based on its initial capitalization of $52 million
CRB is one of the strongest banks in California based on its capital, liquidity and credit quality
► The bank provides loans, deposit and cash management services to individuals, companies and their owners throughout Southern California
► At December 31, 2013, California Republic Bancorp reported total assets of $859.2 million (an increase of $268.1 million), or 45.3% above total assets as of December 31, 2012
Who is California Republic Bank and CRB Auto?
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CRB operates four full-service regional branch offices:
1) Irvine
2) Newport Beach
3) Westlake Village
4) Beverly Hills
CRB Auto is the auto finance division of California Republic Bank, and currently operates dealer service centers in Irvine, California and Dallas, Texas, and a Customer Service Center in Las Vegas, Nevada
The business began originating indirect auto loans in 2011, and operates today in California, Texas, Nevada, Arizona and Iowa
CRB Auto is led by an experienced management team with over a century and a half of combined experience in the industry
Who is California Republic Bank and CRB Auto?
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Experian approached CRB Auto in 2013 with a new product: AutoCount® Application Review
CRB Auto is eager to avail itself of any new data or technology that may improve our ability to service customers or to build/manage the portfolio
We approached testing the tool with the following question in mind
► What does our non-booked business look like, and how can we use AutoCount® Application Review to better meet the needs of the customers we’re not capturing today?
Performed an exploratory analysis to answer the question, and came away with both
► Specific learning relevant to CRB’s business
► A more general sense of the unique benefits of the AutoCount® Application Review tool
And why are we interested in AutoCount® Application Review?
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The external perspective
Being able to see what other lenders are capturing of your application volume, and why, is completely unavailable from internal data
Understanding the dealer base – what are their needs, and how do you and other lenders meet those needs? Are there unfilled needs?
As a lender, what are the benefits of AutoCount® Application Review?
Customizable with your own internal
score and a custom segmentation
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Some of the opportunities for the use of AutoCount® Application Review:
Making targeted refinements to pricing
Optimizing underwriting relative to competitors
Identifying unmet / underserved market niches
A tool for targeting sales efforts to specific dealers, and for monitoring progress in the development or deepening of those relationships
As a lender, what are the benefits of AutoCount® Application Review?
Having the competitor comparison helps to
paint a strong, actionable business case
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You probably can see the potential here to answer questions like:
Which other lenders are decisioning the apps that are sent to me?
What are they doing to capture the deals that I’m not?
Which dealers are doing a big chunk of their business with one or more other lenders?
What are those lenders doing to better serve the dealer’s needs?
... And so much more
But wait, there’s more …
Application level data allows for exploring the universe of non-booked apps in all kinds of ways using your own favorite tools (e.g., Excel, SAS, KnowledgeStudio)
All very satisfying to the inner data geek!
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Importance of custom segmentation
Think very carefully about how to use the custom segmentation
At a minimum, distinguishing approved non-booked from declined would be useful
Submitting the whole file (booked and non-booked) may be desirable
Everything in one place in one format for analysis without having to merge/concatenate different datasets
Consistent dealer naming conventions
Approach the data
With specific questions in mind, but also
Be open to letting the data speak for itself
► Rich data like this often suggests new questions, or may identify previously unknown areas of opportunity
Helpful hints for anyone considering AutoCount® Application Review for the first time
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