Think of it like buying a maintenance plan for your car in advance. You pay once, and the dealer takes care of routine services like oil changes for a set number of years or miles.
It’s the space between how many people could buy a service plan and how many actually do. Finding that gap lets dealers offer the right plans to more customers.
Jake Kneer here in Detroit. On today's bonus episode of the show, our own Jon Hutter talks
with Scott Hensel, finance director at Kunis Auto Group. They spoke at the recent Auto Finance
Summit in Las Vegas about the collapse of major used vehicle dealership group and buy-here-pay-later
lender Tricolor Holdings, specifically what it means for other lenders and dealers.
One-fifth of Kunis' finance originations are subprime. Hensel tells Jon that he has not seen
any subprime lenders tightening up on the deals they'll accept from his group.
Here's a piece of their conversation. Scott, thanks for doing this again. One of the
real big questions I had going into this thing was obviously with the Tricolor thing,
does that kind of affect the subprime market's appetite to do indirect lending in general,
because they're getting pressure from investors or whatever? I guess you guys have a big
subprime practice. What are you seeing? Are you seeing other lenders pull back or anything like
that? No, and it's a great question and great timing because I just came out of a session.
There was a panel and Mike Levin from CPS was talking about just that particular thing where
he brought some stuff to the table to sell off portfolio and they weren't scared. They weren't
running away because it sounds like from the information I know, it was more of an inside
fraud thing where as opposed to a company like CPS, 35 years, good business practice.
He doesn't feel scared at all. None of the people on the panel, from LendBuzz to Global Lending
Services. Yeah, I've seen nothing at this point. You haven't seen your lenders all of a sudden
pull back when you try to place a subprime deal? That is correct.
Okay. No, that's really interesting. Well, that's good. It was kind of our big question.
Where do dealers go from here? Yeah, great session to sit in.
Just in general, what you are seeing on the ground with your customers? Let's start with
the subprime and then we'll go to more broadly. Talk about the subprime area, what you're seeing
there. Subprime, it's been consistent. I've been doing subprime since 2000. You're going to have
your lenders that pick up buying, dial it back, scale back. But for the most part, with the amount
of lenders that we have, as you know, we have 43. We're going to find a home for it unless it's
just that bad. We have seen some fraud situations. Obviously, the synthetic and then just the
identity theft that we deal with. Really for us, my job is to make sure the training and we're
following the process as far as to catch that. From the get-go, make sure we do the policies
and protect ourselves as a dealer. That's really all we can do, but it is scary.
On the fraud issue, one of the things I've been trying to get a handle on is,
and you guys touched on this a little bit, your exposure. Typically, what are the lenders
in terms of chargeback or something like that? Let's say, is it the first year? At a certain
point, are they like, okay, look, this person was paying, now they're not.
There is no time limit. Unfortunately, usually, we do catch it fairly quickly, especially because
now they're reaching out two, three payments past due and they're like, I didn't buy this car.
But sometimes I've seen it where it's been over a year-
And the lender is still clawing back.
And the lender is still coming back. There was a recent one where the customer put a big chunk
of money down, it was current, year and a half later, and went to purchase another vehicle and
it was flagged, it was a bad social, it tied back to another consumer in a different state.
With knowing that, obviously, we repurchased it and had to go through the proper channels as far
as taking care of that. Nothing surprises me. After doing it all these years, it's like, okay.
Yeah. No, you're right. Yeah, it's wild, some of the ones. The one that got me was the ACH fraud.
I was covering one of those a couple of years because I thought that was pretty much instantaneous
as opposed to a physical check. But it was, oh no, I've paid it down a big chunk of it. Yeah,
that one amazes me. I know, it's crazy. But you know what? We'll see. Hopefully,
with technology, we'll be able to get better safeguards, both on the dealer side and the
lender side, in my opinion. What have you found that really works? I mean, you're a large dealer
group. Like you said, you're more exposed just because you have a lot of stores. What kind of
technology have you found or training practices that have been really good for your team?
Keeping up on the training is a big key. Unfortunately, with as many rooftops as
we have and as many cars as we sell, people miss steps. I'm telling you, it seems like
whenever that happens, that's the one that you get pinched on. But really, the other thing I
spoke about was, I know this is probably down the road, but if there was a facial recognition,
that would be tremendous. Because again, it's a fake license, but it passed through the system.
And that's just something the dealer's not going to catch, the lender's not going to catch.
But again, it's just being smart and not wanting to sell so bad that you overlook certain obvious
things like, why are they driving so far to buy a Chevy Malibu?
I mean, it's just a great color. It's the best Chevy Malibu ever.
All right. Hey, now, as a former Chevy Malibu driver myself, okay, it's a funny joke. Coming up,
more of our own John Hutter's conversation with QNUS Auto Group Finance Director, Scott Hensel.
While you provide top-notch support to your team and customers every day,
is anyone taking the time to ensure your sensitive data remains secure?
Just one click on a malicious link can place your entire dealership in danger.
In fact, the average cost of a data breach surpassed $4 million last year.
Stay one step ahead by understanding the threats and minimizing your risk.
Proton Dealership IT works around the clock to provide you support 24-7, 365,
operating out of a cutting-edge security operations center located in the USA.
Proton continuously monitors, detects, and responds to your potential network issues
or cyber threats. You've got a lot on your plate. Keep your focus on where it matters most,
your customers. Learn more about our comprehensive services at protontex.com. That's P-R-O-T-O-N-T-E-C-H-S.com.
Talk about just consumer trends in general. We've talked about affordability as an issue.
Are you seeing the loan structures change at all? One of the things we had, I think it was Edmonds
or Experian, one of them recently had some data that the down payments were a lot lower. I'm
trying to wrap my head around if that was just a one-quarter thing or if that's something you're
seeing on the ground as more of a concern. I don't see it so much on a day-to-day.
I'm a little bit removed as far as my role goes here, but no, I do not see the big down payments
like we used to. Typically, you'll see that around tax time is when you'll see that influx there,
but I think otherwise people are not wanting to part with their money. They want to keep it.
Where are you guys at with negative equity? Is it calming down? Is it still
just obviously we're coming off of the inventory years?
It's been coming down. It was at its height obviously when the pandemic was over. It was
crazy. Everything adjusting the book values, but yeah, I do see that coming more into line
or at least this way the customer will be able to get out of that vehicle.
That's good.
Because the other flip side with that is my concern as I shared this with banks,
when the pandemic was there, seeing them paying too much for a used car is that you're going to
get that not a perfect credit customer, but a near prime where it's kind of like, I'll just
give it back to the bank. I'll get a loan now because I still qualify. I'll worry about it
later. And unfortunately that was a truth right there. So hopefully those days are gone, but even
one of our captive lenders, and this is probably a year and a half ago, we sat down and went through
it and they said, we were having 700 credit scores where payment history is great. And all of a
sudden they just gave the car back. Which was, again, if you're talking $20,000, $30,000 negative
equity, and let's just say they have repairs that need to be done on it. Life is life and you don't
know what's going on in their personal life. It could be a job loss, things like that.
Right. Yeah.
But it's stable and off.
I guess kind of on the other side, the F&I product side of things, what are you seeing there? Any
trends on what's selling well? Is there new? I mean, we're hearing prepaid maintenance seems
to be doing better these days. I don't know if that's anything you guys have noticed.
Great question. Because we actually just had our last monthly meeting with all F&I managers.
We do it once a month. Excuse me. And we actually started separating that out just to see
what the penetration is, vehicle service contract gap, tire wheel, things like that. And when you
look at all the stores and all the different finance managers, you're like, why does this
guy sell 10 a month? He sells zero. But yet over here, it's almost like there's a comfort level
with the pitch or whatever. It's the strangest thing. And I hope to get an answer someday for
that. But yeah, it's just very weird. That's fascinating. Okay. And you guys, I'm assuming
they're kind of standardized on pay plan or is it like, do each store have their own individual one?
Is that what's causing that? No, no. It's either individual or off of a department,
things like that. But we still have goals as far as levels.
Right. But it's not like each one of your dozens of stores has their... You guys have kind of a
coons wide. A common pay plan where everyone peers to it. So yeah.
Yeah. Interesting.
It is interesting. So hopefully I'll have an answer for that.
Good. Okay. Yeah. The other trend I've heard lately in F&I is kind of bundling products and
maybe this is something that you guys have been doing for a while, but is that, or is that a
new thing? Have you guys kind of gotten into that? Because that seems to be doing well for a lot of
stores. Yeah. It's more affordable too, I think, to sell it as a small package, depending on what
those budgets are. And that's what we found most effective is what makes sense. And then to put it
where, what's going to protect the consumer the best? Is it a subprime deal? Because at that point,
service contract, gap insurance, those are important. I think we can both agree on that.
And then sometimes if it's a lease, different products, you're not really going to sell the
service contract. So you say, what's affordable? It's not going to raise the payment too much,
but there's some value to the customer. Yeah. But I mean, have you been doing where
you're kind of selling like a package to them? Like, okay, this is tire and wheel,
key fob and whatever, you know, a couple. Okay. Yeah. We have like three different
levels that we sell. Okay. But it's, is it, are they not sold off? Are they still all a
cart? Or do you just sell it like as a package? It is as a package. Okay. Now,
is that something you've been doing for a while or is that pretty new for the last couple of years?
Yeah. We've, we've talked about it, worked on it for the last couple of years. I think we've grown
as far as seeing it, an uptick as far as the bundle makes sense to the consumers. Yeah.
Okay. So we've seen an uptick there. Did you guys have to change the pay plans at all for that?
Just if you're, or I don't know, maybe you guys don't do it on products per deal, but were that,
you know? No, no, we count them individually. If it's a bundle, we'll just, yeah.
Individual. Yeah. No, that, that makes sense. CUNY's Auto Group Finance Director,
Scott Hensel, spoke with our own John Hutter. Thanks for listening to this bonus episode of
Daily Drive. We'll be back on Monday with a brand new full episode of the show.
About this episode
Scott Hensel, finance director at Kunis Auto Group, discusses the implications of Tricolor Holdings' collapse on the subprime lending market with Jon Hutter. Despite concerns, Hensel reports that lenders are not tightening their criteria for subprime deals. The conversation also touches on fraud issues, consumer trends, and the evolving landscape of financing products, including the growing popularity of bundled services. Hensel emphasizes the importance of training and technology in mitigating risks associated with fraud and maintaining customer trust.
Scot Hensel, finance director at Kunes Auto Group, talks about the collapse of major used-vehicle dealership group and buy-here-pay-here lender Tricolor Holdings and what it means for other lenders and dealers.
Hensel tells Automotive News Staff Reporter John Huetter that he hasn’t seen any subprime lenders tightening up on the deals they’ll accept from Kunes.
