Today, auto lenders and making more loans to “weaker” borrowers as the demand for cars continues to rise. Add to that low interest rates and the potential to boost your profit margins really goes up – provided you don’t make the mistake of lending to every subprime Tom, Dick and Harry.
If you’re an auto dealership considering tapping into the ever-growing subprime credit market, not only is it incredibly important to work with a credit issuer that’s well-versed in providing credit to the best and most potentially profitable subprime buyers and lessees, it’s equally important that you hire a marketing firm that knows precisely how to target those cream of the crop subprime prospects.
As costs for lending continue to increase, you and your credit issuers are likely really feeling the crunch to make loans happen – even if they’re a bit on the risky side. Even though interest rates are still low, they are going up – and so are “funding costs”. The smaller the creditor and the smaller the dealership, the more likely this mounting pressure is causing a squeeze – simply because there’s less of a cushion between being in the red and being in the black. This has caused subprime lending to rise – in fact, according to Deutche Bank, subprime lending has gone up nearly 25% in the past 5 years. Bloomberg estimates that GM Financial alone issued $4.4 billion of these loans in 2012 alone – a staggering number. The concern among many financial analysts is that these rates are unsustainable – but so long as there are customers who are both willing and able to pay higher than normal interest rates as a means of getting the vehicles they want in spite of their less than stellar credit, this space in the automotive financing industry shows no real sign of stopping.
The key is to find customers who are not merely willing to pay the higher interest rates – but who are able to. Credit problems plague many these days, especially following the Great Recession. Many lost their jobs and lost their ability to pay their bills in the process – but, now that the economy is rebounding, a great many of these individuals are gainfully employed, current with their bills and merely waiting out their credit mistakes to be expunged from their credit reports in the next 7-10 years. Hiring a marketing firm that is able to pinpoint these customers and send them offers via automotive direct mail and email can help attract them to your dealership.
Remember, with subprime marketing, it’s all about knowing the rules and following them – if you partner with someone who can help you do just that, you’ll stand to grow your profit margins by leaps and bounds.