ConsumerFi Podcast: Trends in the Wholesale Vehicle Market and the Coming 'Perfect Storm' with Black Book's Paul Machin
Fraud expert and Point Predictive‘s Chief Strategist, Frank McKenna, joins Joel to talk about 2020 fraud trends including the unprecedented tax payer losses from COVID relief programs, how masks can lead to identity theft and the benefits of fraud consortiums.
Read Frank’s blog, Frank on Fraud, here.
ConsumerFi is presented by Nortridge Software: Loan Software That Accelerates Change
And special thanks to The National Automotive Finance Association: The only trade association exclusively serving the nonprime auto finance industry.
Welcome to the podcast today. I’m really excited to have, Paul machine who is the, Director of international and us strategic accounts. That’s a mouthful for Blackbook Paul. Welcome to the pod. Thank you for having me, Joel, I’m looking forward to having a robust conversation centered around all things automotive and the lifeblood of the industry is vehicles.
[00:00:44] Amen brother. Well, Paul and I met a couple of weeks back, maybe a month back, uh, on auto transport Intel. That’s a J Wertzberger, uh, production. And, uh, thanks Jay for introducing us. And Paul, you were so kind as to help me with [00:01:00] getting a speaker for the Northridge user meeting that we just had last week with Alex and that went, uh, I just went, I, I, it couldn’t have gone any better.
[00:01:11] It was great. So I have to thank you upfront for that, Paul. Yeah. Sad. You know, um, Alex, you can’t go is one of our. When he gets on in front of a white board and starts writing mathematical equations, I’m like, that’s not math. I learned,
[00:01:27] okay. It’s it’s this, it’s that super ultra smart map. It’s a totally different language. Yeah. People that don’t know Alex, he was a, he was, he’s a mathematician. He’s said he was, uh, uh, academic, uh, for a number of years. And then we, um, We decided to, to, to show them the light. Right. We have cookies, we have cookies.
[00:01:48] Uh, so, um, anyway, that’s a stuff going on and, and, and the topic we kind of wanted to get it today. Paul was about really looking at, uh, what you’re calling the [00:02:00] perfect storm, which has to do with like used in a new vehicle inventory shortages that we’re aware of. Um, yeah, there’s obviously a number of top other topics we can kind of dive in on.
[00:02:10] But for those of you, who’ve been listening to the pod first off. Thank you for, for listening, please like, and share, uh, the pod, uh, This is going to be probably one of the first ones. We’re going to post this on YouTube as well, because, uh, Paul is, uh, is great. And he brought some slides and some data that may enhance the conversation for the folks that are listening to the pod without the aid of, of visuals.
[00:02:34] Don’t worry. We’ll walk you through the slides. We’ll make sure you follow along just fine. But Paul, um, I’m going to give you control. Do I need to give you control or no, you don’t. You already have a screen. Yeah. Yeah. Then I’m I’m good. You know, I have to start shaming. Cool.
[00:02:52] So again, the initial slide talks about showcases all the use cases and more that black book data and [00:03:00] analytics can be used for. And so as people dive into the slides and they see something about what’s risk modeling, especially for lenders and investors, give us a call. We have a really robust, a data science team that handles risk modeling.
[00:03:13] We’ve been talking about for the last actually for most of the, uh, the pandemic. Is the need for the industry to adopt additional sourcing channels for high quality inventory, because we were looking really far ahead into the future. What, what would happen because of the risk modeling factors that we take into consideration?
[00:03:34] We felt that the majority of the industry was using a magic eight ball. You know, they would shake it up and whatever, you know, whatever the answer was was their business plan. Whereas we take a look at all these elements, these data points, and a lot of the data seems to be disconnected. But when you really connect the dots between these data points, it tells a really compelling story, especially if you understand all the ins and [00:04:00] outs of our industry.
[00:04:01] Uh, so we started talking about the case for the driveway by, and a couple of weeks ago, I introduced the coming perfect storm and the first leg of that storm. Is the economy and the recovery. It’s no secret. We’re in Acacia recovery where one arm is just exploding and the lower leg is really suffering.
[00:04:22] And I’ll talk a little bit more in a few slides about that lower leg, uh, pillar the storm, number two moratoriums in credit. What does that mean to the automotive industry as a whole, you know, we need inventory. So dealers get inventory. They need a way to be able to sell and finance them and Landers need a way to make quick decisions that reduce their risk and improve profitability for both them and for their dealer body.
[00:04:50] Right. So how does moratoriums and credit impact that? Not just today, but six months from now or in 2022, 2023. And so on, we’ll have a [00:05:00] discussion about that. And then perfect storm number three, which we’re really starting to see, uh, the waves on that really swelling is the reduced ne new vehicle production and the shortage of used vehicle inventory.
[00:05:14] So when you combine all these three seemingly disconnected, uh, events within our, within our industry and then connect them together, it’s a compelling story. Yeah. So right now, going into the, uh, new, new and used vehicle inventory shortage. I want to be able to talk about it in this light, here is our wholesale weekly price index and the arrow points to the purple line.
[00:05:40] And this is this year 2021 last week. We were just below, uh, 2009 levels, right at the beginning and end of the crash. Uh, and you could see what the 2019 levels for pricing and the 2020 levels rollercoaster ride for 2020. We see this [00:06:00] trajectory. It just it’s like a fish jumping out of the water on wholesale prices.
[00:06:05] We finished 2020 with elevated wholesale price inventory, nothing in 2020 was seasonal, uh, that any of us in the industry, whether you’re a lender investor, dealer, wholesaler could actually trend. And it was just all over the board. And we said, yeah, go ahead. So the charts for folks that aren’t seeing it, we’ve got four years, uh, shown with, with, with a line chart, starting at a, at an original point of one.
[00:06:34] Uh, on the chart, it’s like a, like an index. Okay. So 2009, um, you’ll have to help me on that. Paul, that’s the one that steady, uh, almost like a 45 degree. Sorry. 2009 is the greenest greenish line. Colorblind blind. So you got to help me? Yeah. Okay. So it’s kind of a steady slope, 2019 by example. Shows, but it shows some [00:07:00] seasonality where you start off at that point on day zero, and then it was the wholesale prices was dipping and then coming back up and it’s week by week.
[00:07:08] So 52 along the X axis, then shoot 2020 was a total rollercoaster ride. It started going up, took a huge dip. Went into negative territory and they blast it back up to max out at 2020, 2009 levels of like a 1.2 index. So, so 20% inflation here’s the thing with 2021 we’re seeing is it’s like a J curve for like an investor.
[00:07:32] There’s a little dip into the negative with a very short duration. Then we are pitching straight up. I mean, the pitch of that line has gotta be greater than. Then it’s gotta be greater than 45 degrees. But the thing is it’s, it’s, it’s got, it’s like if you bought a loan portfolio and it was, it was really, really taken a lot of early, uh, defaults.
[00:07:53] That’s what the line looks like. So what we’re seeing is the price, the wholesale prices are increasing and the, [00:08:00] and the line in the trajectory. There’s no point of inflection. It’s just going up. I went straight up and these are the two to six year old vehicles that are running through the lane. Uh, so the hope is that that, that corresponding surgeon pricing would also be quite on the retail side of things.
[00:08:19] So we need the backfill a little bit about why we’re seeing this pressure in the wholesale market. Uh, we started off the year talking about a potential reduction in new vehicle inventory, uh, by almost a half a million units because of the microchip that is further as exacerbated. With the storms in Texas and the shutdown of the pipeline, because who knew petrochemicals are in the by-product.
[00:08:44] One of the byproducts is foam that makes seats. So we have manufacturers now that are having to adjust the allocation and production of their inventory for the OES for always for dealerships, based on what fall may have available to put into it proceeds. [00:09:00] Um, and it’s 500,000 was at the beginning of the year, right?
[00:09:04] It could be as much as 700,000 short in new vehicle production. It’s just, it’s just an, it’s an estimate. Now that means that on top of the 14.4 million is the predicted in new vehicle sales for this year, the way a dealership, new car dealership survives on average, 130 new and used vehicles is what they need to sell a month.
[00:09:28] That’s just the average, the always care that is supposed to be more new vehicles than used. If you’re a franchise dealership and you’re Abbey, the whole reason why you’re in business is to make a profit and you’re not going to get the new vehicle inventory. You’re going to turn towards, I need to sort of use vehicle inventory and we’re not having a challenge at all in the options.
[00:09:49] The options are selling out just about everything they got and you’re selling out based on the numbers we see here at high premiums, because everybody has a strong demand for that, that [00:10:00] that is causing what price compression. When we look at the retail listings that we compare year over year. Um, and it’s the same trajectory that you see ups on the previous slide.
[00:10:12] So this is the retail price listings on two to six year old vehicles. So what Blackbook does part of our retail market intelligence is we scan the, um, the new car dealer and the independent dealer websites. Now we’re looking for VIN numbers. We haven’t seen before. And in that process, we capture their vans to BDP and we’re tracking all the price changes available inventory.
[00:10:36] And we get a lot of intelligence that tells us how consistent are these prices holding the line. Uh, so with that, we can end the, with a prevalence of one price selling. Uh, that’s more, our dealers are taking. It’s pretty consistent with, so we can say that this surge and increase in retail listings is consistent with the surge in the wholesale price [00:11:00] increase.
[00:11:01] Now, the challenge here is a profit. Has it increased? It’s it’s that compression is still there. So what becomes very critical for a dealer when they can’t get all the inventory that they can turn. Turn times is what’s important to them with in compress Martin. So now they’re looking for ways to source more inventory because they can’t get enough of the auctions today and that’s going to it.
[00:11:27] So they’re going to be the big fish that’s going to fill their belly at the auction. And then the independent auto dealer manager that goes out there every, you know, once a week is going to sit there and say, aye, For you, you’re buying, you’re buying up all the good deal, right. You’re buying up all the good collateral and I’m kind of left with, with, with less selection, if you will.
[00:11:48] Is that, is that a factor? Yes, sir. That’s a huge factor because you know, an independent dealer may not be able to compete on price pressure because he, he can’t afford to retail out of it. Yeah. [00:12:00] And that segues into what the lenders are looking at on their scorecards. They want that 130% plus plus plus advance.
[00:12:07] Um, It’s been very much restricted now and it’s restricted to the K shaped upper arm, right? There are people who can afford to do those advances, uh, that, that, uh, that are recovering very strongly in this economy. So that 130 plus plus it, those individuals in the upper arm, or less likely to need that kind of advance.
[00:12:29] They, the people who really need those kinds of loan advances are on the lower leg. So you’re looking at this price compression all the way around. The good news is, is that we see changes in the industry that are, uh, one the driveway by where, uh, where the sharp dealer groups and the sharp wholesalers.
[00:12:49] And I see several large new entrepreneurial startups. They’re focused on the private party sale. They’re buying vehicles directly from John Q public without John Q [00:13:00] public. Having to buy anything from them. And they typically are paying less money for that vehicle. And they’re getting a higher quality, well service car at the same time.
[00:13:09] So that’s just one of the venues that we see growing 2021 that will help the shortage of used vehicle supply. That’s running through the lens. Now, part two of this has to do with the fleets. Uh, when you think about the fleets and the leased vehicles, you got to think in terms of available inventory. So this slide here talks about wholesale prices week ending March 16, 2021, and the first square I didn’t capsulate the segments.
[00:13:38] So we have the subcompact car, the compact car mid-sized car, full car and near luxury car. Those are the volume segments, right? When you that’s, that’s 75% of what’s being sold today in volume. That’s encouraging because. Like an independent or a [00:14:00] franchise dealer or an investor who’s looking to buy a portfolio business.
[00:14:03] If the, if, if their mix is comprised largely of those vehicles and they’re trying to offload them now is a good opportunity for them. Because the average week of week, last week, the combined numbers were just a little bit North of 500 and some odd dollars. Now those, those, those cars are closer to $800 and in total gain, which is tremendous.
[00:14:25] When you think about that, And the truck trucks segment, you see the sub compact crossover, the compact crossover, the mid-sized crossover full-size crossover, all the way to a full-sized one that’s are short to the, um, compact luxury crossover. Again, the segment that represents higher volume, right? Those saw an increase there’s almost as much as $800 on the SUV combined.
[00:14:56] When you go to the small truck and full-size truck category, [00:15:00] those guys are in this $600 increase week. Last week was just under five. This week is over six, and these are again full volume category vehicles. So they’re not limited. The, the, the increase in pricing is not one segment of the market it’s across the board.
[00:15:19] So that’s encouraging news. So then for, wow, this is, I mean, so, so prices keep going up. I can’t help, but kind of think of this in the form of, of trading, trading a stock or something like that. So you, you made a good point. If you’re holding a bunch of this and you can sell it. Uh, you may be able to sell it like your fleet vehicle, for example, maybe it will sell it through wholesale and get a decent return on it.
[00:15:45] Right. And then they’re going to sit there and say, just like when people, you know, I’m in Southern California, the housing market is insane. I have people driving by my house asking to buy my house. No joke. I’ve heard that. I thought it was lower it’s for real. So it’s like, okay. Yeah, I’ll sell you my [00:16:00] house.
[00:16:00] I’ll make a premium on it, but then where do I go? I need, I need a place to live. I need more inventory. So then if the new. Vehicle manufacturers are running into these issues, right? The chips we’ve got the petroleum issue. Um, I had Doug Neil from San Diego a couple of weeks ago on the pod talking about third wheel towables right.
[00:16:23] Uh, RV Mark. He created a market for non prime near prime to, to, to, to be able to do these types of indirect transactions. But their issue is there’s all these, there’s all these third wheels and all these, uh, uh, uh, recreational vehicles, but they don’t have fridges. They don’t have couches. They don’t have all the trimmings that they need to get the thing out the door.
[00:16:45] So, you know, when I look at it in that context, we got that, we got chips, we got all this other stuff. What do you think the forecast, like, where’s this going to peak out? You see what I’m saying? Like with the price increases, et cetera, like how about the counter cyclical guys that are like, I’m waiting [00:17:00] for everything to dip and that’s what I’m going to really kind of replenish my inventory.
[00:17:05] My last slide is going to be the wrap up, but I don’t want to give the, I don’t want to spoil the message. Right. So there’s one more, one more point. I want to emphasize about this slide. So all fleet off lease companies and fleet companies are now looking at their inventory and their making some executive decisions because what they cannot get.
[00:17:26] Right? Yeah. Now is there new inventory on order from the OES they’re delayed? Just like everyone else. Yeah. They’re large orders. They’re not getting them. So they have an aging fleet of high mileage vehicles. Most likely have some quite a bit of damage. And they’re looking at these numbers that I’m sharing with you right now.
[00:17:46] And they’re making executive decisions say, I can offload these high mileage damaged vehicles. And then I can go back into the industry and buy low mileage, late model vehicles to [00:18:00] replenish my inventory. So now we’re competing against fleets and off of these, at least manufacturers were looking to purchase that, that same inventory as well, which is also going to drive pricing up.
[00:18:13] Now, what does that mean on the lender side of business? Are they going to, will they be changing, uh, their scorecard? How will they be considering advancing excellent TVs, right? Max LT. But you probably have to give some on that. If these things, although to the valuations go up, like, do they, do they travel as well?
[00:18:33] Well, if they’re, if they are basing it off of. The true Mark evaluations that we’re showing, you should see that in many lenders are using black with data and analytics to make those, those kinds of choices. But here’s the trend that I’m watching. And if you’re familiar with a company called constant.ai, they’ve been talking about this alternative trends in alternative data to backfill.
[00:18:58] Um, how [00:19:00] lenders today can really rely on beacon schools or five new sports. So there’s 1.2 trillion in auto loan debt. Now, if you think back to 2008, 2009, when the housing market crash, it was about that same number. So it’s kind of scary, 84.7 million auto loan borrowers in the nation. And I’ve been reading estimates as somewhere between 25 to 35% of that is in some form of a forbearance or moratorium on payments.
[00:19:29] Right? Which is significant when you think about that number, but what’s encouraging is the, the human factor, the auto lenders, 50% of them now are using alternative data. What is alternative data and trends? It goes beyond the ability, stability, and willingness to pay. You know, they’re not looking at, let me see your credit payment history on your credit report, as they verify your stability, how long you’ve been at your address.
[00:19:57] Let me see how long you’ve been working and what kind of income and what’s your [00:20:00] debt, debt, debt to income, right. Actually looking at all these behavioral patterns such as, how did you pay you to your utilities? What is your credit card usage? It might be hard, but are you paying it consistently every month, even though it’s high because you’re, you’re managing your debt.
[00:20:17] Uh, what type of employment are you in the upper upper layers of the, you know, the occasion or are you in the lower layer, which has a higher risk of, uh, of losing employment, um, cash balances and checking savings. What kind of investments you have? They’re going beyond the scope of, Oh, you’re an 800 beacon or six 40 beacons, and that is what’s driving some of the financial decisions moving forward and, and we’ll see more and more of that.
[00:20:43] Oh, constant. AI is a, is a platform that plugs in the middle between lenders and at risk consumers. And it helps those customers figure out ways to restructure loans, maybe do a short payout to get out of their current loan and into a newer vehicle. That’s less price [00:21:00] so they can make that they can afford the payments.
[00:21:02] So there’s a lot of flexibility that we’re seeing on the lender side of the business. I’m calling it the human factor. There’s a lot of compassion. In that 50% of the business, they’re looking at the human factor because they recognize one thing. The pandemic has forced a lot of good credit customers into a bad credit situation.
[00:21:20] And it’s against their abilities to ability, willingness to pay that has to change. So this is a, from the, and that’s a hot link to TransUnion on their intelligence board that they had this information on. Cool. So we’ll see how it goes with the, with this government and the consumer financial protection Bureau.
[00:21:38] And what they will do the rest of this year to improve the lending, uh, make it easier, especially for the lower leg of the through recovery economy, to be able to finance more vehicles because we’ll need that. And the last lag to answer your question, when do we anticipate this? Um, um, when you know, [00:22:00] stock Mark, when w when did we see it go back down?
[00:22:02] Uh, so the Keisha recovery talk about the lower Lake here. Think in terms of. Um, retail operations managers running seven or eight restaurants or retail outlets. Thank, uh, you know, general managers of, of roasteries restaurant chains or retail stores or hotels and resorts. Yeah. There’s a lot of professionals in this lower right leg that were paid very well.
[00:22:29] Uh, now those people need to find lower priced inventory to fit their new budgets. But when you’re looking where it per day, they’re based on that, that, uh, 2019 levels new vehicle inventory will be below for at least the next three years, sales will be below 2019 level and inventory levels we predict for new cars will be below 2009, 19 levels for at least three years, I think in terms of what we sold last year.
[00:22:55] So just, um, just a little bit more than [00:23:00] 14.7 or just under 15 million and. That’s 2022 trades, 2023 trades. If, and we’re, that means that we’re going to have a lower supply of available low mileage, late model used inventory because of how short sales were in 2020. We also have a moratorium on repossessions.
[00:23:24] Some estimates are 2.4 million repos or on hold right now. No telling a when they’ll come back into the market, if they ever will. So that’s a bottleneck. We also predict that the used vehicle inventory levels will also remain below 2019 levels because of those factors. I just outlined earlier now. So, and that’s dependent on the normal flow, the normal channels that we’re used to.
[00:23:49] So we’ve really got to throw the box app. Don’t think outside of the box, we’ve got to throw the box out and get really creative. And one of those is that driveway by that we’ve been [00:24:00] promoting and supporting for the last couple months, or I’d say the last three months of 2020 and all of 2021 right now.
[00:24:11] Yeah. The case chief recovery is, is of concern to me. I know that, uh, Um, I’ve seen some information saying that there are certain job types. You know, you talked about stability and other underwriting factors where you can kind of profile an individual to determine, you know, you you’ve already isolated.
[00:24:28] You know, the stability factors tend to be one of the biggest things to move the needle relative to a forecast of, of an ability, uh, for the person to perform. Um, but with the. The people that are in hospitality, I’ve also, uh, restaurants I’m really viewing their, their employment situation right now to be structural in that it’s going to take.
[00:24:55] So I have, I have a friend who’s a professional in the hospitality industry and he was telling me [00:25:00] he’s been out for work for a little while, and this is a pro I mean, he managed a food and beverage for a big hotel. Um, and, uh, you know, th this is like, you know, It’s a big job, but there’s no job. So you talk about like the, the hotel industry being down the, the, the air travel being down well, that’s going to impact the rental cars as well.
[00:25:24] Right? So there’s, there’s all these factors at play where it spills over, but the individuals themselves structurally, as far as I’m concerned, I just had to tell my friend, I was like, dude, just hang in there. This has nothing to do with you. I know you’re trying to find a job. But there is just no joy out there.
[00:25:40] There’s no love is you. You’re just going to have to be patient and wait. It’s going to come back. But. You know, for, for, for lenders. I know a lot of them are looking at those types of jobs and, and kind of sharpening their pencil a little bit and keeping an eye to make sure that they’re not, uh, on the [00:26:00] wrong side of things.
[00:26:00] Well, I mean, quite frankly, I think it’s just a fairness issue, right? So you look at. Back at the mortgage crisis. Um, we, we started as in the individuals and, and a lot of cases with good reason, they were packing people into loans that were beyond their financial kind of capability. But then, you know, from a Bureau standpoint, I think they want the lender to really guide the customer in that equation to make sure that they don’t get packed into something that they can’t afford.
[00:26:27] And so for these individuals who have very shaky job prospects, or maybe even not even a job. You know, it’s going to be really hard for me to advocate saying, yeah, this is, this is a great credit risk. I understand the new car. I understand the need transportation, but you know, it may not be the right time to kind of pull that trigger.
[00:26:48] I mean, I think that’s probably what a lot of lenders yeah. You’re thinking is what type of, uh, What type of replenishment do I want to do with my portfolio? Because a lot of [00:27:00] these, you know, especially with a deep subprime portfolio, your portfolio will turn over. Uh, I know a guy locally that I think half his half is half his portfolio turns over a year.
[00:27:12] So he’s got to do, you know, half of that portfolio volume every year, just to, just to keep the portfolio at a flat level. That’s tremendous. So flat just to keep it at a flat level. Yeah. Yeah. I mean, and so you’ve got the. Dealers, maybe not making as much, but definitely charging more line. And then the consumers are kind of taking it.
[00:27:36] Are the lenders going to give on the LTV to kind of help the consumers get into this car too, at least, or stretch the term? Right? We’ve already been stretched in terms to keep the car, get the customer, to be able to get in the car and afford it. Provided that, you know, we’re comfortable that they have some kind of good employment situation.
[00:27:55] Uh, there’s quite a lot here, I think for the lenders to ponder Paul, that you’ve brought to [00:28:00] light with your analysis. I really appreciate it. Um, the, the, the wholesale side and the repo moratoriums are something that obviously you and I have talked about extensive lovely with the national automotive finance association.
[00:28:15] Uh, we’re, we’re very proud to have an open line of communication with the CFPB. Obviously you and me and others in the market are, are reliant on repo Alliance to do the lobbying at the federal level that we need. You know, we think of it as just covering the re recovery industry, but it’s kind of a misnomer because you’ve got all these delinquent accounts at once you start skipping them, as far as I’m concerned, it falls into this bucket.
[00:28:41] So I think skip through a disposal and. Look, prices go up. If you can get better wholesale returns for the consumer, they’re going to be helped because it’s less of a deficiency. Does he balance if they, if they weren’t able to satisfy that debt, but then again, they need to go buy a new car and then they’re going to get front confronted [00:29:00] with these higher prices.
[00:29:02] You guys don’t track anything on the private party sale markets. Do you to know? Cause I would, I would wonder if maybe private party sales, when you say the driveway by, I think of, of, you know, going in. You know, sending out whether it’s a letter or, or drive by or whatever, you know, trying to, trying to buy people’s cars, uh, to replenish your inventory.
[00:29:24] Um, do you have, do you ever track the PDP markets, Paul? Um, no. Only if it goes through one of our partners that are in that space. So one of our partners in that space, uh, shared a interesting statistic with me. They said that they are. Uh, that the private party space sells more used vehicles than the entire new car and independent market combined.
[00:29:50] Oh, I absolutely believe it. Right. I mean, when you think about that number is tremendous and their goal, this company’s goal is to own 2% to 5% of that [00:30:00] market space. That’s like saying, and I throw them, I saw about. CarMax Carvana in room and what they’ve sold as independent, but they’re basically independent.
[00:30:12] E-tail right. And if, if you segment new car franchise used vehicle sales and independent used car dealers nationwide, we’ve always averaged between 38 and 40 million used vehicle sales in that, in that space consistently every year. It’s about a 50 50 split between the new car franchise dealers and the independent market.
[00:30:34] When you take Carvana of Rumi and CarMax and you put their numbers in, they match those three, three independents are responsible for 5% of what the used vehicle, independent dealer selling today. That’s a significant number. That’s a big whale to be hitting the auctions, right? I mean, you take those three together.
[00:30:57] Do you guys track any ideas as [00:31:00] how their inventories are like, are they actually accumulating inventories? They, they, they do a lot of driveway buys. Oh, they do? Oh yeah. They’re buying a lot directly from customers. You know, even customers who don’t want to sell it, you don’t want to buy a vehicle, they just buy it out.
[00:31:15] Right. So private, private part I have to drive away. Buy to me is, is a customer who wants to sell their vehicle without the commitment to buy? No. The one from somebody else. Yeah. Right. Think about that landscape. And it’s really not hurting the auction space. Because the options are selling out on it, just about everything they’re selling right now.
[00:31:36] I saw some guy do a post yesterday or two days ago, and he said he, he hit the record for the most vehicles sold in a single day, a thousand units over a thousand units. And, uh, I saw it at first. I thought it was a retailer and I thought, Oh my goodness, how big is your operation? Like, you must be like, like a Carvana.
[00:31:59] Right. [00:32:00] Cause Longo does that, but that was an auction. That was an auction. Right. So they had over a thousand vehicles sold. There you have it. I mean, I, I’ve never seen a supply and demand equation like this. I mean, even with the great recession, what were we doing then? Paul Cash for clunkers. We were trying to bring vehicles and inventory out of, out of commission.
[00:32:23] Right? This is a totally different game. We don’t have chips. We don’t have cars. Um, yeah, I’m in the market to buy. I want to, I want to get a Tacoma. I want to, I’ve got a Highlander. I want to get it Tacoma. I just got too many things. I needed flatbed for 5,000 over MSRP and I’m like, Hey bro, good luck. I know you’ll find somebody to sell to you will.
[00:32:45] Uh, it’s just not me. I’m not going to buy until things come back to a same level. Do you think that the consumers on the, on the super prime side, they’re still super proud through prime, they’re still buying, right? They’re still out there. The main reason why we hit [00:33:00] the sales, we did last year, super prime and prime market is the number one reason why we were successful in getting the sales.
[00:33:08] We did get last year. Yeah. And so prime keeps going down. It’s been going down since 2015. Yep. If you listen to the podcast, you’d see that or hear about that. Um, I think Melinda talked about that with experience and, um, I do encourage folks to, you know, to keep checking out the data sources, uh, Paul, uh, I think w w we’ll probably wrap it up here.
[00:33:30] I’ll give you the last word. But before that, I want to, I want to start with, thank you for joining. I want to thank the black book team. Um, I’ve known you guys and been working with you guys for years. And, uh, definitely quality data and information. Um, you know, why don’t you give us a couple, uh, key takeaways or any final thoughts that you may have for, uh, for the folks that are acting in the space?
[00:33:54] I like how you break it down for the, uh, the folks that are involved in the wholesale markets maybe have repo, [00:34:00] uh, wholesale, uh, managers at lenders or the lenders themselves with their program. I mean, we talked about a number of things. I mean, Maybe give us some final thoughts for things that they may consider or take action on in the near term.
[00:34:14] Uh, so I think a really good strategy for lenders that are holding large portfolios and fleet companies is to take a look at what they can offload now because the markets are just crazy, uh, and, and take advantage of that. I think lenders and investment groups. Uh, who are trying to understand what could happen in the next six months should take advantage of our custom scenario based residual value studies.
[00:34:41] And we base those off scenarios that you, you come to us and say, I’d like to understand if this green new deal really goes all the way through, what would my portfolio look like? If gas prices go North of $4 a gallon again, uh, [00:35:00] Yeah, because 75% of our portfolio are full-sized trucks and SUV’s what would happen to the market space.
[00:35:07] What would happen if there’s another pandemic that came across, uh, what would happen if there was another, um, earthquake in Japan or another big freeze in Texas or another flood in Louisiana? What would those inventories look like? I mean, how can we, how can we better prepare ourselves based on those analyses?
[00:35:27] And that is one of the things that our data science team has been very busy doing since the beginning of this pandemic is helping people understand, uh, custom scenario based studies. Uh, then the last piece is better decisions when it comes to acquiring inventory, financing, inventory, and disposing of inventory.
[00:35:49] By understanding the true valuation of that individual. We can no longer accept the old business model of business as usual. You know, the analytics that we have today [00:36:00] that black book has today, there’s nobody in the vertical that can give the kind of precision of that market valuation. Like we can and identify where anybody who has who’s managing an inventory.
[00:36:13] I can identify. Two or three areas that a few process changes can equate to millions and millions of dollars of recovery. I’m not talking about making additional money. The money’s already there just modify a few processes and you can collect some of it. This is where the money’s at. You know, w when the pandemic started, I thought that there was going to be a lender, attrition, um, fraud based delinquency and, uh, recoveries, uh, and probably the opposite effect of what we have here with an oversupply.
[00:36:47] And, uh, this is where the money’s at, right? If you’re, if you’re over there worrying about customer delinquency and all this other stuff, I’m not to say that it’s not something to concern yourself with. And your, your particular business based off what you’re buying. You know, [00:37:00] you may have a lot of people on the lower case of the recovery, and that’s why everybody has their own reasons.
[00:37:05] Right? But this is where the, this is where the light is, right? This is where you gotta be looking. And, uh, I, I, I, you couldn’t have asked me to predict this at the onset of the pandemic you really couldn’t have. And what happened with this to me, Paul is. It’s kind of a double-edged sword, right? So on one side it’s it’s negative, right?
[00:37:28] We’ve got increased prices to the consumer. Um, good, good for the lenders who are offloading inventory and enabled to take advantage, they’ve got the inventory, dry powder, but you know, on the negative side, it’s just these increased prices and LTVs to the lenders and you know, what is this going to look like?
[00:37:47] Kind of thinking about the old housing, uh, short sales. What is this going to look like when the customers pay in, you know, $550 for a vehicle that they could purchase two years down, you know, two years in. They see, they could buy the same vehicle and [00:38:00] pay only $200 a month. What’s going to be their interest in continuing to pay.
[00:38:04] So at that time, I say, that’s when you start looking at the consumer and your workouts and all that, but for now, it’s, it’s all about that inventory, the underwriting, uh, everything collateral based, right. And some consumer thrown in with the lower. Leg of the K recovery. You know, if I was in a risk position, I might, CEO is like, what, you know, give me a download and a skinny on that.
[00:38:25] I would, I would, I would use this information. This is great. I think the CFPB is going to impact the lower leg when they they’re going to make some decisions that will, that will influence the lending criteria for the lower leg. And which will be a benefit. Yeah. Yeah. As we know the consumer finance protection Bureau, anything they can do to protect the consumer and help the consumer.
[00:38:50] It’s a good time for them to, to really step up and take and say, here’s the programs have been put in place. Think of cash for clunkers. I think you’ll see something similar like that. I [00:39:00] don’t have a, I’m not using a magic eight ball. I’m using the data in front of me and say, something’s got to give. Yeah, I agree.
[00:39:08] This is, this has been a real pleasure. We’ve got Paul machine. He’s the director of international and us strategic accounts for Blackbook. Paul. Thank you so much. Very enlightening and, uh, actionable information for all the listeners to kind of take into account. And, uh, I just can’t. Thank you enough.
[00:39:25] Thank you so much, Paul, from black UGL, it’s been a lot of fun. I’ve enjoyed it. Thanks brother. The consumer fi podcast has been brought to you by Northbridge loan software. That accelerates change. We’d also like to thank the national automotive finance association, the only trade association, exclusively serving the non-prime auto financing industry. [00:40:00]