Business Description
We are a specialty finance company. Our business is to purchase and service
retail automobile contracts originated primarily by franchised automobile dealers
and, to a lesser extent, by select independent dealers in the United States
in the sale of new and used automobiles, light trucks and passenger vans. Through
our automobile contract purchases, we provide indirect financing to the customers
of dealers who have limited credit histories or past credit problems, who we
refer to as sub-prime customers. We serve as an alternative source of financing
for dealers, facilitating sales to customers who otherwise might not be able
to obtain financing from traditional sources, such as commercial banks, credit
unions and the captive finance companies affiliated with major automobile manufacturers.
In addition to purchasing installment purchase contracts directly from dealers,
we have also acquired installment purchase contracts in four merger and acquisition
transactions, and purchased or originated immaterial amounts of loans secured
by vehicles. In this report, we refer to all of such contracts and loans as
"automobile contracts."
We purchase automobile contracts with the intention of financing them on a
long-term basis through securitizations. Securitizations are transactions in
which we sell a specified pool of contracts to a special purpose subsidiary
of ours. The subsidiary in turn issues (or contributes to a trust that issues)
asset-backed securities, which are purchased by institutional investors. We
depend upon the availability of short-term warehouse credit facilities as interim
financing for our contract purchases prior to the time we pool those contracts
for a securitization.
Our automobile financing programs are designed to serve sub-prime customers,
who generally have limited credit histories or past credit problems. Because
we serve customers who are unable to meet certain credit standards, we incur
greater risks, and generally receive interest rates higher than those charged
in the prime credit market. We also sustain a higher level of credit losses
because of the higher risk customers we serve.
When a retail automobile buyer elects to obtain financing from a dealer, the
dealer takes a credit application to submit to its financing sources. Typically,
a dealer will submit the buyers application to more than one financing source
for review. We believe the dealer’s decision to choose a financing source
is based primarily on: (i) the interest rate and monthly payment made available
to the dealers customer; (ii) any fees to be charged to (or paid to) the dealer
by the financing source; (iii) the timeliness, consistency and predictability
of response; (iv) funding turnaround time; (v) any conditions to purchase; and
(vi) the financial stability of the financing source. Dealers can send credit
applications to us by entering the necessary data on our website or through
one of two third-party application aggregators.
Upon receipt of information from a dealer, we immediately order two credit reports
to document the buyers credit history. If, upon review by our proprietary automated
decisioning system, or in some cases, one of our credit analysts, we determine
that the automobile contract meets our underwriting criteria, we advise the
dealer of our decision to approve the contract and the terms under which we
will purchase it. In some cases where we don’t grant an approval, we may
suggest alternatives from the terms proposed by the dealer or request and review
further information from the dealer.
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