The State of the Subprime Market
September 2011
Jim Bass, CEO
Auto One Acceptance Corporation
Jack Tracey, Executive Director
National Automotive Finance Association
State of the Below Prime Auto
Financing Industry
Jack Tracey
Executive Director
National Automotive Finance Association
Top Auto Financing Industry Trends and Events
• Funding availability issues diminishing -- even non-prime
• Innovation abounds
• Risk managers analyzing scorecard and FICO predictability
• Refinements in underwriting
• Collection effectiveness continues to deliver benefits
• Direct Internet financing challenging the indirect model
• Regulation -- Dodd-Frank requirements; CFPB formation
• Outsourcing/offshoring continues
• Dealer application portals expand capabilities
• Electronic processing picking up speed
Property of the National Automotive Finance Association
Year-over-Year Summary Metrics
Origination
FICO
NEW
Average
Amount
Financed
NEW
3
points
$916
3
points
$754
USED
USED
Average
Term
30 Day $
Delinquency
Unit Repo
Rate
NEW
NEW
NEW
1
month
3
month
USED
Net $
Charge-off
Rate
NEW
57 bp
95 bp
49 bp
56 bp
209 bp
352 bp
USED
USED
YOY summary data for core respondent group
(same 26 companies, 9 Small, 13 Medium, 4 Large)
Property of the National Automotive Finance Association
USED
Non-Prime Industry Trends -- 2011 Update
2010 significant issues:

Consolidation and alliances continue

High Mortgage Defaults

More Regulatory and Compliance Issues

Returning Sources of Funding

Competitive Opportunities
New challenges but
some continue….
2011 significant issues:

Predictability of Scoring Models

Regulatory Uncertainty

Housing Crisis Lingers On

High Unemployment Continues

Re-engineering for growth
Property of the National Automotive Finance Association
Trend of Used Extended Terms
2008 – 2010 Booked Contract Distribution
100%
80%
60%
32%
40%
25%
20%
20%
35%
25%
26%
2008
2009
0%
61-72 mo%
Used terms continue to extend
Property of the National Automotive Finance Association
2010
49-60 mo
Trend of Originations by Risk Band
2008 – 2010 Booking Risk Distribution
100%
3%
17%
4%
19%
24%
80%
22%
60%
47%
49%
35%
40%
20%
22%
16%
0%
< 500
18%
6%
2%
4%
4%
2%
2%
2008
2009
2010
500-549
550-619
620-679
Property of the National Automotive Finance Association
680-719
720+
Auto Decision Update
Year-to-Year Auto-Decision Trend
(Percent Using)
17%
SMALL
22%
13%
MEDIUM
17%
38%
LARGE
56%
20%
ALL
27%
0%
10%
20%
30%
2009
40%
2010
Substantial increases in auto-decision usage in 2010
Property of the National Automotive Finance Association
50%
60%
USED Originations by TERM
Origination Distribution
100%
32%
80%
Up again
from 51%
60%
35%
40%
28%
20%
0%
Used
<=36
37 - 48
49 - 60
61 - 72
Property of the National Automotive Finance Association
73 - 84
USED Originations by TERM
Avg FICO
37 - 48
49 - 60
60
5
54
4
54
53
600
8
0
800
Up substantially
from 556
400
200
0
<=36
61 - 72
73 - 84
Property of the National Automotive Finance Association
>84
USED Originations by TERM
Avg LTV
%
0
1
1
1
1
7
%
%
0
2
1
1
1
6
%
150%
Down substantially
from 126%
100%
50%
0%
<=36
37 - 48
49 - 60
61 - 72
73 - 84
Property of the National Automotive Finance Association
> 84
2010 NAF Survey Trends
Originations

Increased credit availability spurs growth

Look-to-Book rates are up significantly especially for middle-tier
applicants

Significant decrease in highest risks (<500)

Significant increases in auto decisions

Longer used contract maturities – mitigated by risk and LTV changes

New-vehicle financing continues to expand (18% of booked vs 15% last
year)

Verification procedures are intensifying

Risk models are being refined to account for strategic defaulters
Property of the National Automotive Finance Association
Summary Profitability Metrics by Class Size
Small
Medium
30%
Large
All
25%
20%
15%
10%
5%
0%
Interest Income
Cost of Funds
Pre-Tax Income
Pre-tax Income Up 184% -- lower losses and cost of funds
offset lower interest income.
Property of the National Automotive Finance Association
Repossession
15%
Small
Down from
14.2%
10%
Medium
Large
All
5%
Overall average repo rates were down
from prior year, particularly in the Small
group.
0%
Repossession Account Rate
$8,000
$7,000
$6,000
$5,000
Overall average net loss per
repo was down $1,218 from
prior year.
$4,000
$3,000
$2,000
$1,000
$0
Repossession Avg Net Loss Per Account
Property of the National Automotive Finance Association
2010 NAF Survey Trends
Portfolio Results

Pre-Tax Income is up 184%

Lower losses and funding costs more than offset rate decreases

Delinquency improving

Repossession and bankruptcy losses beginning to decrease

More effective collection operations continuing to pay off


Behavioral scoring taking hold

Early intervention
Vintage delinquency and loss analysis is the norm
Property of the National Automotive Finance Association