Car-Mart CFO Explains Why BHPH Market Should Stay Strong

July 18, 2012

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BENTONVILLE, Ark. — As larger lenders appear to be more willing to fund a greater amount of subprime auto loans, at least one buy-here, pay-here executive isn't apprehensive about the prospect of what that development could mean for lots that generate their own paper.

America's Car-Mart chief financial officer Jeff Williams responded to an analyst query about the situation during a recent investment conference. The questioner wondered how the growth in subprime loans by lenders such as Ally Financial, Capital One and Santander Consumer USA was going to alter how Car-Mart performs with its network of 115 dealerships primarily in the Southeast.

"There's definitely more financing available in the used-car market," Williams acknowledged during the Jefferies 2012 Global Consumer Conference last month in Nantucket, Mass.

"It hasn't worked its way down into our market — deep, deep subprime," he continued. "We probably do have a few customers at the upper-end of our ranges that have a few more options now than they used to, but I don't think that's anything significant. Certainly hasn't affected our business much at all."

Car-Mart is coming off of a fiscal-year performance that left the company's leadership "very proud." The company generated increases in both its net income and revenue by double-digit percentages while pushing retail sales up by more than 9 percent from the year-ago period.

Specifically, the company pulled in $33 million of net income for the fiscal year ending April 30, up from $28.2 million in the previous year.

Revenues came in at $430 million, marking a 13.4-percent uptick. Same-store revenue moved up 7.5 percent. Car-Mart posted retail unit sales of 37,722 units for the year, representing a 9.6-percent gain.

In the final quarter of the year, Car-Mart achieved net income of $9.6 million, compared to $8.4 million a year earlier. Quarterly revenues jumped 9.8 percent at $113.5 million.

The company moved 9,789 retail units during the period for a 5.9-percent year-over-year gain.

"It goes without saying that we are very proud of our results for 2012. These results were realized because of the dedication of our associates as they worked tirelessly with our customers while always striving to uphold our mission, vision and values," stated William "Hank" Henderson, the company's president and chief executive officer.

"As we look forward, it is truly remarkable to think of the opportunities we will be providing to our customers and to our associates as we add new locations and as we continue to grow our business from our existing dealerships," he continued. "We will continue to focus all of our efforts on helping our customers succeed by working with them when they experience financial difficulties. This, quite simply, is what we do."

Whether it's a Car-Mart lot or another franchised or independent store, dealers who have potential buyers with subprime credit standings might have a better chance of getting them financed if FICO's quarterly survey of bank risk professionals is any indication.

More than 50 percent of respondents expected the auto sector to see the largest increase in subprime borrowing this year. The survey indicated 38 percent of respondents expected the largest increase to be in credit cards, and 12 percent expected the largest increase to be in residential mortgages.

When asked about overall subprime lending activity, 44 percent of respondents felt that such lending this year would remain flat compared to 2011.

"We are clearly seeing a loosening of credit in the auto finance market, with lenders responding to increased consumer demand," said Andrew Jennings, chief analytics officer at FICO and head of FICO Labs. "This is good news for car dealers, and it should help the auto sector continue its recovery."

The survey, conducted for FICO by the Professional Risk Managers' International Association (PRMIA), also found that survey respondents expected delinquency rates on most types of consumer loans to remain flat or decline, indicating that consumers are regaining their credit health.

No matter how much consumers' credit might be improving, Car-Mart's Williams remains confident the BHPH industry will remain strong.

The Car-Mart CFO wrapped up his response at the Jeffries event by stating, "Common sense will tell you that there are probably a few of our upper-end customers that do have a few options from the increase in financing from those sources. But our basic customer has been the same for 31 years. It's a customer that's paycheck to paycheck. That's the buy-here, pay-here customer; always has been and always will be."

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