Vision 2014: What Happened To The Auto Loans You Didn't Fund

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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

2 © 2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.

Discussion

What’s happening in the market

Case study: Prestige Financial Services

Case study: California Republic Bank


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)


$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


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


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?


Andrew Wright

Prestige Financial Services

What wasn’t funded

and how did they perform?


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

http://images.google.com/imgres?imgurl=http://www.superbikesusa.com/news/2006_m1.gif&imgrefurl=http://www.superbikesusa.com/news/2006_mfoty.html&h=228&w=311&sz=6&hl=en&start=18&um=1&tbnid=cYC9UH08Xj_s0M:&tbnh=86&tbnw=117&prev=/images?q=miller+motorsports+park&svnum=10&um=1&hl=en&sa=N

http://images.google.com/imgres?imgurl=http://www.oursportscentral.com/images/teams/pclslbees.gif&imgrefurl=http://www.oursportscentral.com/services/releases/?id=3137241&h=90&w=90&sz=4&hl=en&start=3&um=1&tbnid=uHL4QgkNu8Lx_M:&tbnh=78&tbnw=78&prev=/images?q=salt+lake+bees&svnum=10&um=1&hl=en&sa=N

http://images.google.com/imgres?imgurl=http://www.lhmse.com/images/companyLogos/kjzz.jpg&imgrefurl=http://www.lhmse.com/posDetail.cfm?positionID=128&h=115&w=189&sz=5&hl=en&start=30&um=1&tbnid=AJlOld9w0qVA2M:&tbnh=63&tbnw=103&prev=/images?q=kjzz+14+tv&start=20&ndsp=20&svnum=10&um=1&hl=en&sa=N

http://images.google.com/imgres?imgurl=http://www.energysolutionsarenatickets.com/images/EnergySolutions-Arena.jpg&imgrefurl=http://www.energysolutionsarenatickets.com/&h=127&w=417&sz=9&hl=en&start=12&um=1&tbnid=RwvdBO-vpxfRtM:&tbnh=38&tbnw=125&prev=/images?q=energy+solutions+arena&svnum=10&um=1&hl=en&sa=N

http://images.google.com/imgres?imgurl=http://www.entertainmentlegends.com/JordanCommons.gif&imgrefurl=http://www.entertainmentlegends.com/CelebrityAutographExpo.html&h=98&w=305&sz=13&hl=en&start=33&um=1&tbnid=GuZUYwAt1cWYbM:&tbnh=37&tbnw=116&prev=/images?q=jordan+commons&start=20&ndsp=20&svnum=10&um=1&hl=en&sa=N


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


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


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


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


Findings


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%


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


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?


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


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


Changes


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


Digging into

the unfunded

David Clatfelter

Originations Risk Manager

CRB Auto


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?


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?


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?


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


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


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!


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


For additional information, please contact:

[email protected]

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