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ConsumerFi Podcast: A Conversation with Spartan Financial’s Mark VanGeison and Jimmy Rambo


May 20, 2021


Episode 27


Joel is joined by Spartan Financial’s President, Mark VanGeison, and Senior Manager of Asset-based Lending, Jimmy Rambo, to discuss the importance in metrics outside of ‘loan to value’ to maintain a portfolio, and how buying decisions have matured over the years, and how there will always room in the subprime market for smaller finance companies even in a world filled with giant banks.

Check out their consumer level resources here and their free legal resources here.

You can meet Joel in person at the AFSA Independents Conference and Expo this May 24th-27th in Ft. Lauderdale, Florida or the National Automotive Finance Association’s 25th Annual Non-Prime Auto Financing Conference this August 30 – September 1, 2021 in Plano, Texas. Register today!

ConsumerFi is presented by Nortridge Software: Loan Software That Accelerates Change.

And special thanks to The National Automotive Finance Association: The only trade association exclusively serving the nonprime auto finance industry.


[00:00:20] All right here. Welcome to another episode of the ConsumerFi podcast. I’m pleased today to be joined by Spartan Financial with two guests. Today, we have Jimmy Rambo and Mark van Giessen. Let me start off by, by welcoming you both to the podcast.

[00:00:35] Mark VanGeison: [00:00:35] Thanks, Joel. Thanks for the opportunity and you and I go back a long way and, and it’s exciting to watch all the things that you’re doing in the industry and the influence that you’ve had.

[00:00:46] And. We appreciate that. The partnership.

[00:00:49] Joel Kennedy: [00:00:49] Absolutely. Yeah. Mark was, was kind enough to open the doors kind of you and Kurt a couple of years back when I had Pelican and we did a little best practice sharing day and I got a little South [00:01:00] Carolina barbecue, so I can’t complain.

[00:01:03] Mark VanGeison: [00:01:03] Welcome to come back anytime.

[00:01:05] Joel Kennedy: [00:01:05] Uh, good, good. Well, yeah, maybe, maybe we start Mark. Let’s start with you. You know, you kinda stood this business up. Can you give folks a. A little background of, of your, your personal and professional background in Barton. And maybe just give us the, the microwave version of, of history from a Spartan stamp.

[00:01:23] Mark VanGeison: [00:01:23] Well, it, it goes back. I was a former investment banker in Atlanta doing traditional sell side M and a, and some public offering work. And I came in 2005, which obviously is a couple of lifetimes ago to Spartanburg, South Carolina from Atlanta. And I worked in a family office, uh, for a successful entrepreneur by the name of George Johnson.

[00:01:47] And he’s got a long track record of, of growing and scaling, uh, various different businesses. And he asked me to identify kind of his next [00:02:00] venture and we poked around a couple of different opportunities and stumbled into autofinance. Um, Yeah, looking back. It was terrible timing because it was right before the great financial crisis.

[00:02:12] But so we, um, in 2007 identified a portfolio company, it was a wholly owned subsidiary of Sonic automotive. They were getting out of the business and long story short, we bought up. The portfolio and brought the management team from Charlotte down to Spartanburg. And this was in 2000 again, and, and that was the Genesis of American credit acceptance.

[00:02:38] And then we, you know, great financial crisis hits liquidity capital all became very difficult. To locate specifically for some of the smaller indirect lenders. And we were actively buying portfolios in the market. And eventually the market got so hot that we were not competitive and Kurtzman. Our CEO [00:03:00] came to ACA from, well Wacovia then Wells Fargo, their consumer APS group.

[00:03:05] And we put our heads together and said, well, heck if we can’t buy the assets, maybe we can lend against them, you know, as collateral. And put many warehouses together. And so that Joel in kind of mid 2010 was really how spark got started with our, you know, kind of moving from acquisitions to lending. And that, you know, as the core, we obviously, we were still, uh, originating loans indirect, but we, we decided to start this new entity and brand it something separate.

[00:03:40] So that’s its background and a little bit of my background and how I got into the, to the audit finance space.

[00:03:48] Joel Kennedy: [00:03:48] And Jimmy, how about

[00:03:49] Mark VanGeison: [00:03:49] you? I was a banker prior Spartan. I spent 15 years in community banking, roughly half of that was on the relationship management side. And half of that was on the credit [00:04:00] administration side, particularly the special assets or workouts.

[00:04:04] And I came to Spartan, I guess over four years ago now, beginning of 2017, originally to lead our line of credit underwriting team. And then my role has evolved over time and gravitated more to client facing and getting out and speaking and helping us build relationship.

[00:04:26] Joel Kennedy: [00:04:26] So folks for folks that don’t know, you know, I mean, we’re really talking with, with Spartan, we’re talking about an opportunity for entities that hold.

[00:04:38] Uh, paper, whether they originated themselves or, or purchased it through an indirect transaction. So you’re talking about everything from a buy here, pay here, dealer, carrying their own paper to finance companies. And you know, one way to get liquidity is to sell some of the portfolio that you have held.

[00:04:55] And if you have actually serviced and seasoned it, then that, that, that, that can have some [00:05:00] meaning to the buyer, but then as well, uh, you Mark it and Jimmy, maybe just to kind of. Explain the other side of the house, because, you know, I have exposure to both. I obviously was, was active in, in selling whole and purchasing some, but most of the selling all loan portfolios.

[00:05:17] What about on the, um, on the financing sides and, and, and who are the folks that, that could really benefit from talking to you and Mark? Okay. So

[00:05:27] Mark VanGeison: [00:05:27] we provide lines of credit, um, You know, in those crimes, credit can range from 2 million to typically up to 25 million. We can’t go above that. 25 tends to be where, um, where we kind of cut it off in house.

[00:05:41] And that’s where the spot here pay here. Dealers or independent finance. Yeah. And, and, and Joel for us. And as you can imagine, what, what. We attempt to do, and we’re not always successful in this, but I think what makes us a little unique [00:06:00] is that, uh, we are a division of American credit acceptance, which is, you know, one of the, maybe, certainly not the largest and not even large, a medium sized player in indirect space.

[00:06:12] We’re able to leverage the knowledge and expertise of our core indirect finance business. It gives us a unique insight. Into the collateral. That’s originated to your point, either at the buy here, pay here dealer or an indirect lender. And we use that as our main focus and underwriting. And when we say we’re an asset based lender, uh, 90% of our diligence and our focus is going to be on the auto loans.

[00:06:42] You know, we will, we will obviously spend time understanding, uh, the financial structure, uh, the financial statements. The legal compliance, uh, are all, are all big parts of it, but we are very, very focused on, um, [00:07:00] the collateral. And so what, what does that mean? That means if you’re a smaller, indirect finance company that, uh, was newly established and doesn’t have the track record, right.

[00:07:11] Maybe it doesn’t have. Some of the required documented policies or procedures that a bank may require, or you don’t have so many years of audited financials, that’s where we fit in. Great. And as Jimmy said, we, we kind of get up to about 25. We can go a little bit North of that. And in a perfect world, clients are with us.

[00:07:33] Um, you know, it can range from 24, 48, 60 plus months, and they quote unquote graduate to some of your more traditional lenders. Um, but you know, I think that’s people are a little surprised. They, when they think of Spartan, traditionally, they think primarily of buy here, pay here that will tell you over the years, um, You know, our portfolio has been pretty [00:08:00] well balanced, um, with both indirect finance companies and, and buy here, pay here.

[00:08:06] But, uh, but certainly we know both sides of the, of the story and, and, you know, we, we, we attempt to customize each transaction to fit. Uh, our borrowers needs, right? That’s the beauty of auto finance and, you know, back in at Pelican and the various things you’ve done since then, the beauty of auto finance, there’s a million ways to skin the cat and run a good profitable business.

[00:08:32] That’s

[00:08:32] Joel Kennedy: [00:08:32] right. The thing that I love about, um, about talking to folks like you, is that you have, uh, a really unique perspective to the market. And you have experience with dealerships, you have experience with lenders, and I wanted to kind of get into a little bit of that with you both right now, because I think that some of that can reveal some interesting patterns.

[00:08:53] I mean, we could get down to the details, but I guess, you know, starting at the, at the tippy top, We [00:09:00] look, we go through cycles, right? This is just the nature of the beast. You’re going to go through cycles. Some people have a stomach for it. Some don’t, you know, take for example today we, uh, the cryptocurrency markets had a massive dump.

[00:09:10] I think, I think Bitcoin’s down like 30 something percent. I’ve seen elevator drops like this many times and I’ve lived through some battles and I have the scars to prove it. But for many people, this is their first time around. And so they kind of look at this and they freak out. But for folks like you, Mark and Jimmy you’ve, you’ve been in the market for a while.

[00:09:27] You see these cycles, so you have a steady your hand. So, you know, I want to make sure people know first and foremost, you know, whatever we say about the health of the market, just realize that you got to keep it in perspective. Right. You know, don’t freak out, but, but at the same time, you know, How about how about dealerships and fin CO’s.

[00:09:46] I mean, especially where we are today and where we came through last year, how would you, how would you guys, you know, generally assess the health of those two kind of entities? And I know dealerships is a broad stroke. I know there’s buy here, pay here and [00:10:00] franchise and independent, all that. Um, I obviously with you guys, you know, just, you know, you’re probably talking more buy here, pay here in independent, I would imagine.

[00:10:09] Yeah.

[00:10:09] Mark VanGeison: [00:10:09] Yeah. So when, when we. For, for your audience. Yeah. When, when we use the word dealership, we are, um, using that in reference to buy here, pay here, right? We, we, as a company at American credit acceptance will purchase contracts from independent dealers. But in Spartan, when we use the word dealer, we’re really referring to buy here, pay here.

[00:10:33] And, and reality is Joel, this whole. Industry. It’s really self-contained and it’s really, it’s the best, obviously, as we’ve ever seen it, you know, I’m sure you and those listening have all read the wall street journal, or they all see subprime news or autofinance news. And every everything that comes across the ticker nowadays is, you know, just how wonderful.

[00:10:58] Portfolios are [00:11:00] performing cash. Collections are high recovery rates for repose or high because the wholesale value I was looking earlier at the Manheim index that I couldn’t believe what I was looking at. Irregularly, look at the black book. We looked at Manheim and it’s like two 50. And you know, you had a dip to about 1.5 and COVID, then it’s been a rocket ride up.

[00:11:22] But I will tell you across the board. You know, whether I’m speaking of our portfolio at ACA as an indirect lender, whether I’m talking about our client’s portfolios. Uh, whether it’s indirect or buy here, pay here. And Oh, by the way, portfolios that we’re looking at to, to buy regularly in the market for our bulk group, they’re all performing exceptionally well, you know, delinquencies, if you look across the board and this is, you know, very.

[00:11:51] Very general. I wouldn’t want anybody to, you know, execute some huge trade off of this, but you know, you’re looking at delinquency [00:12:00] some 200 to 300 basis points that I’ve linked onesies for us as kind of looking at 30 plus 200, 300 basis points lower than the prior years you recovery rates are. Well in excess of 50%.

[00:12:15] So there’s a significant amount of cash that’s being generated, um, from, from the portfolio. So I would broadly say whether it’s a single lot. You know, buy here, pay here dealer in Texas or smaller indirect lender in California. Right now the portfolios look really, really good, but the biggest issue just as everybody knows that we’re facing now is organic growth because cars are so hard to find and inventory is so thin and.

[00:12:48] And there’s such competition that the franchise store, or there very, very large independence. So there has been pressure. It’s been very good, you know, for, you know, you’re collecting what you got, but in [00:13:00] order to originate more difficult, um, yes. So that’s kind of at a high level, what we’re seeing.

[00:13:08] Joel Kennedy: [00:13:08] So along those lines, um, Wow.

[00:13:12] How about the fact that, you know, you have the Manheim Manheim’s on the moon there’s scarcity in terms of the collateral? In my mind, it would, it would drive a lot of competition for pricing for no other reason than not, not even growing, but just replenishing the portfolio that is running off at an adequate level to make sure that you’re, you’re kind of covering your expenses.

[00:13:37] Mark VanGeison: [00:13:37] Yeah. I mean,

[00:13:38] Joel Kennedy: [00:13:38] yeah, I guess my question there is, is, are you seeing that in the portfolios that are coming across, are you seeing that in pricing? Are you seeing that in? Well, I guess you don’t necessarily know what they paid for the contract upfront. They’ll always, but. Like with your pricing that you flipped back, are you, are people calling you, you know, are they telling you you’re crazy?

[00:13:58] Like,

[00:14:00] [00:14:00] Mark VanGeison: [00:14:00] it’s interesting, Joel. I mean, it’s, it’s super interesting. And, and we’re, we’re dealing with this phenomenon that we’ve, you know, we’ve not, we’ve not really seen before, you know, we we’ve been through cycles and, you know, but, but I will tell you, we’ve not really witnessed a wholesale value like this, and it’s.

[00:14:19] And it’s trailing impact, right? Cause most of what we do, whether we’re buying loans or whether we’re, we’re looking at individual contracts from a, from a cloud perspective, a lot of what we do is we focus on loan to value. Right. And right now the issue is you’re either buying off the highs of, of, or you’re lending off the highs of the denominator, which is the value of the vehicle.

[00:14:47] And, and so w we’ve just gotta be really, really careful. I think we’ve tried to be very disciplined. We generally put, like I said earlier, a lot of emphasis on this loan to value number, but there are other metrics that we can look [00:15:00] at to, to kind of offset it. But yeah, it, it, it’s, it’s crazy. I’d be lying to you.

[00:15:05] Um, if I, if I knew the answer, I’d probably wouldn’t broadcast it in the industry. I try to go bottle it up and make a ton of money off of it. You know, it’s similar to the way we, we approach this, the COVID situation, you know, a little, a little over a year ago, we just didn’t know. Right. We, we kind of had to make it up as we went along and we did the best that we, we could with the information and the data that was available.

[00:15:31] To us. And we, we made what we thought were the right business decisions, and time will tell what those were or the right ones. But yeah, it’s a little goofy right now, man. Just to put it in technical terms.

[00:15:43] Joel Kennedy: [00:15:43] Have you, have you noticed anything within the, the structures that, that are coming through? I know LTV is one of the measures that we spoke about, but you know, I mean, the thing that, that concerns me a little bit, I know that the portfolios are holding up and delinquency looks good.

[00:15:57] And all that, but I do get worried because over the [00:16:00] past 15 years, you know, subprime market, as a share of the overall market, it just it’s been declining. And I get a little concerned about availability and, you know, options for the, for the consumer. Um, are you guys seeing anything else within there, within the structures that indicate, you know, loan terms, extending any other kind of canaries that, that you’re saying, let’s just keep an eye on this.

[00:16:28] Mark VanGeison: [00:16:28] You know, Jimmy, you might be able to comment from some of your clients. Um, I, I think generally speaking, yeah. I mean, there’s some properness, right? I mean, there’s no question. That, um, there’s some aggressiveness out there in the market because people are trying to sell cars and, or purchase contracts.

[00:16:53] You’ve you’ve mentioned earlier trying to cover fixed out backs. And there is some of that that going on. I [00:17:00] do think by and large. You know, the, the industry is getting smarter and you have mentioned ability to pay. I think the industry by and large is getting smarter and how they’re treating consumers.

[00:17:11] You know, making sure that the consumer has the opportunity to be successful in the loan and that, you know, the, the consumer is buying a reliable and affordable transportation, you know, which, which really is code for saying, you know, there are certain times where you. You know, we’re seeing some of our borrowers requiring more down payment.

[00:17:30] That’s a big one right now. So down payments are higher terms are, you know, they’re stretched, but they’re not like crazy. Cause vehicle values are higher clearly. And you know, right now we’re, again, we’re seeing a lot of our clients doing a better job of really verifying. I don’t want to get too in the weeds here, right?

[00:17:50] Sources of income and employment so that they’re not making bad credit decisions off of temporary cash injection that the consumer has received from, you know, from the government by and [00:18:00] large. I think it’s been pretty, pretty disciplined, but yeah, you’re seeing some aggressiveness out there. I don’t know, Jimmy, if you, you know, you’ve talked to a lot of people as well, right?

[00:18:09] As far as consistent with what we’re seeing, where that wholesale value and it has gone up and the European more in auction. But they, and they’re trying to find a way they can’t pass on necessarily that same origin to dealer to that consumer. Is it that markup? So a lot of you’re seeing maybe a slightly longer term to keep that payment affordable or they’re really offset net with right now are larger down payments and they’re getting, um, really good down payments right now that historically

[00:18:36] Joel Kennedy: [00:18:36] speaking that’s terrific.

[00:18:38] That’s so this is probably a question more for Mark. I mean, I know. Yeah, Spartan has been in business for a number of years through a number of cycles. Certainly don’t want to give away any of the secret sauce, but maybe generally speaking, how has your, your you’re buying you’re buying program, right?

[00:18:56] Your philosophy changed over the years. Cause you mentioned some of [00:19:00] the verifications, uh, and if that’s happening at the dealership, then that’s great. That adds value in my mind to the quality of the paper, you know, generally speaking. Yeah. How has, how has the, the, the buying process and your philosophy kind of matured over the years?

[00:19:15] Mark VanGeison: [00:19:15] So, yeah, you know, that, that is interesting. And, um, Again, I don’t want to keep beating this drum, but one of the things that makes us unique is that we’re able to, again, leverage off knowledge over in the indirect side. And so what we’ve done Joel is, as you would expect is we’ve got a lot of data because we’ve been in business in the fart and side now for a little over 11 years.

[00:19:46] And we’ve captured. We were using that data and we’ve created our scoring models, right. That allow us to look at different types of auto assets and assign a value [00:20:00] to it. And, you know, we are constantly updating that model with quarterly releases to get, to get smarter. Right. I mean, they’re trends, they come and go.

[00:20:11] And so I think, answer your question specifically the first. Thing. I would say that where our businesses evolve is we’ve just become kind of very analytical and model driven. And that’s the basis from which we can then kind of set deal terms, whether we’re lending against. Uh, collateral, I mean, a pool of auto loans, or we’re buying that pool of auto loans.

[00:20:34] We’re able to pretty quickly determine what, what we think the value of that portfolio is and how much cash it’s expected to throw off. I think our evolution has also focused around compliance. I mean, to the best of our ability, we really try to, to. Partner with re with good operators who are, who are very [00:21:00] sincere about, again, selling a good car at an affordable price to a consumer who can make the payment.

[00:21:06] And I’m not so certain Joel that we would have had that mindset, you know, call it six, seven, eight years ago. But compliance is at the forefront of pretty much everything we do at ACA. And look, we’re not trying to be legislators here. We’re not trying to, uh, to make laws, but we are capable of understanding what the laws are and trying to.

[00:21:28] Align ourselves with those, those good operators. And when we see issues, use that as an opportunity, right. To share best practices. Yeah. You know, again, I think from a, from a purchasing standpoint now not talking lending, but, but from providing loans, As I said earlier, there’s a million different ways to skin the cat.

[00:21:49] And so what we really try to do for buying a portfolio is sit down with the seller to understand, okay, you know, Hey Joel, you’re telling me, you know, right. How do you [00:22:00] collect this portfolio? Or how often do you call in? Are you, you have to weigh texts. And so w we try to do the best that we can is to mirror, right?

[00:22:09] The sellers processes. So that. We ensure a very smooth transition from that consumer because as you well know, transfers are disruptive. And so the, the least amount of disruption that you can have for the consumer, obviously the better off everyone is. So, you know, I would say model driven, compliance. And doing a better job of understanding, you know, our client’s business models and trying to align ourselves as closely as we can with them.

[00:22:40] Those would be the three major areas. I say, how we evolve been, you know, it’s never perfect. Right. You know, we’re, we have teams within Spartan that are constantly trying to change our processes to get better, to be more transparent, to work faster, you know, cheaper and all that kind of good stuff. Then.

[00:23:00] [00:23:00] You know, we’re a long, long way from being where we want to be, but, you know, we feel pretty good about it. I’ll just say, even I’ve seen in my four years, that that consistent, that kind of evolution of it becomes truly kind of relationship-based and conversation. And whether that’d be on the buying side or the lending side of just sitting down with the dealer, finance companies, understanding their needs and just having that conversation and build that relationship with them.

[00:23:26] And that in terms made us better as well. Yeah. Yeah. On that point, Joel was, you know, I mean, again, being an operator back in the day, it’s just interesting to talk to these owners because some of them, they just have various different business models. A guy might say, Hey, look, I’ve got access to, and I’m making all this up.

[00:23:44] I have access to 3 million of equity capital, right. And I’ve got up, I’ve got up my local bank. He’s given me, you know, dance terms of 70 cents on the dollar. So, you know, at most I can have a portfolio of X, but I can [00:24:00] originate a lot more than I have capital for. So my business model is, you know, I warehouse the loans for 90 to 180 days, and then I.

[00:24:09] You know, I’m going to sell a traunch every quarter. You know, that’s very different right. Than, than somebody who says, Hey, Um, uh, put my life savings into this business. I want to collect every single dollar, you know, I, I want to, uh, not essentially share the profits if you will, with, with a third party. So I’m going to retain and collected.

[00:24:32] So there’s just so many different ways to, to run a good profitable business. And that’s, as Jimmy said, that’s the fun part of what we do because anytime we, we walk into a finance company, You know, if they’re in South Florida and understand, you know, their market and what their, who their dealer base is, who their customers are, what cars are popular in that market, what our loan structures.

[00:24:56] And then the next day you turn around and you go see a guy in Chicago. It’s just [00:25:00] very, very different. And it makes the, makes this. You know, unique and, and you just got to understand at the end of the day, what are these guys, ladies trying to accomplish? How do they make money and how can we, can we help them, you know, be successful?

[00:25:18] Joel Kennedy: [00:25:18] Yeah, I love, I love the relationship aspect. Um, one of the things that my partner Troy used to always say back at Pelican was you never stop looking for money. And what he really meant was don’t stop cultivating these

[00:25:30] Mark VanGeison: [00:25:30] relationships. Well, I’ll say, you know, again, we’ve been around this for awhile. This, this industry.

[00:25:39] And it’s not just farming right? There are others. There are other non-bank finance companies. There are a lot of great banks who, who know this industry and who are good partners. And I would say that has been a huge shift over the last, I’d say five years now. You know, [00:26:00] certain participants kind of come and go depending upon the macro economic environment.

[00:26:05] Um, but by and large, we we’ve seen, you know, a good consistent of supply if you will, of, of capital partners, whether those are again, lenders or buyers of contracts, whether it’s seasoned loans or, or at the point of sale. I think you’ve, you know, the industry has matured. Um, there’s been very successful knock on wood securitization market that supports right.

[00:26:32] Broad originations of, we use the term emerging credit by the way, not so broad. Uh, but, but, you know, I think the industry is becoming more legitimized if you will. And there’s a plethora of, of capital providers out there to, to support, you know, small, independent finance companies and dealers. Yeah. So

[00:26:58] Joel Kennedy: [00:26:58] I’m gonna, I’m gonna, [00:27:00] I’m gonna ask some questions about looking forward and we can have some fun with this.

[00:27:03] If you guys to want to talk crazy talk, um, I’m all, I’m all about going down the worm hole or the rabbit hole, I guess you call it going down the rabbit hole. You know, I wonder about.

[00:27:15] Okay. So I wonder about some of the movements in migration. I saw a really wonderful article. The other day about Wells Fargo says we’re really going to take a serious investment. Like they, they, they put a number on it. It was millions, hundreds of millions. I forget. Uh, but financial inclusion for these emerging markets, you know, socioeconomic inclusion, um, and.

[00:27:41] I say I applaud that because I think that the more that people are banked, the more that it provides, um, something for somebody to evaluate, um, to verify, to validate that earnings and that income. Right. For it’s just as one example, um, But I was really disappointed and I’ll get on my [00:28:00] soap box for one second.

[00:28:01] I was disappointed in the great recession. A lot of the larger banks exited the market there. They’ve not indicated that they’re going to come back. Okay. I see articles like that saying that Wells is really going to try to do something to them. You know, do education, place branches within areas, zip codes that they would not have, have done before.

[00:28:20] And I wonder. Are they really something to be concerned with? Should we, from a competitive standpoint, are they going to be able to wrap their mind around it? Because as far as I’m concerned and I’m. Full disclosure. I worked at this place. I think capital one does a good job at that. But capital one is a bunch of like geniuses.

[00:28:40] I mean, they, they, they, they beat the crap out of the data. I mean, that’s part of the reason why I left the company. I got sick of having to go through six layers of review just in order to kind of, you know, push a piece of paper across my desk. I mean, it was, it was onerous, but I will admit they know what they’re doing.

[00:28:55] I know people like that. I say there’s a legitimate, competitive [00:29:00] threat, but what about these other larger banks and Jimmy you’ve worked at banks before and Mark, obviously you’ve, you’ve done it all. So, you know, what do you guys think there’s a real threat there to the subprime market at large, to some of the smaller regionals

[00:29:12] Mark VanGeison: [00:29:12] Joel, I, um, so I may have a different opinion than others on this and, and certainly I can’t speak for, you know, um, the multi-billion dollar market cap banks, and you know, what.

[00:29:25] Uh, what they’re doing, um, because you know, clearly they’re publicly traded banks and they’re measured quarterly on earnings. And they’re always looking right. Especially in a low interest rate environment in particular for additional yield on assets. And, and I just think those companies are so large that they already play in this industry and they just sit.

[00:29:53] At the top of the funnel, if you will. Right. And so if I’m a large franchise dealer [00:30:00] or even, yeah, I mean, let’s just say I’m a franchise dealer, you know, you, you you’ve been in these dealerships, you, you, you go into a, you know, a Sonic store AutoNation, or, uh, you know, Berkshire store and you talk to the FNI guy and Oh, and what banks do you use?

[00:30:18] And he rattles off like 12, right. You know, and. Inevitably, you know, he, he goes by, by credits here. And, and what we believe is that the banks, you know, whether it’s Wells B of a ally, whoever you want to call it, they’re so large that they’re already participating. So it’s just a matter of when do they.

[00:30:42] When do they turn the dial to get more volume and more yield? When do they dip down and when do they go back up? So we always, we always think they’re here. We always know that we’re competing with them. We, we like to think that we. Um, you know, we’re [00:31:00] certainly not cap one boy, would we love to be there, as you said, they’re, they’re awesome at what they do, but we think they’re here.

[00:31:08] We don’t think they, you know, they may back off a little bit, but they never fully retreat. Uh, and, and, and the reality is you’re seeing, you’ve seen institutional capital come in, you know, whether it’s an Exeter. Uh, for, for example, uh, and there are a lot of others out there who if, you know, I’m making this up and this is complete conjecture, there’s not based in fact, but for whatever reason, you know, a well or a ascent and air or a cap one or whomever, you know, wants to slightly move up market from a perceived credit risk perspective.

[00:31:49] There’s someone immediately there. I mean, bam, within seconds to fill that gap, right? Yeah. That’s the thing about, and if you look at the trends and [00:32:00] how consumers are buying cars, how they interact with dealers, you know, the digitization, if you will, of the transaction, it’s just going to continue, right? I mean, this is a business of scale, right?

[00:32:15] Scale matters, cost of funds matter, uh, op X matters. And, and so, you know, I, I don’t have a crystal ball and again, if I did, I wouldn’t share it with anybody. Um, it’s going to be competitive. It’s not going anywhere. It’s a big industry. You know, it serves a huge need, uh, you know, in the U S economy. And, you know, consumers need cars and there’s always going to be finance companies there and banks, they just start.

[00:32:45] Yeah. That’s just my opinion. Now look again. I’m not, um, a while I’ve done this for 10 years, I’ve not done it for 30 or 40 years, and they’re a hell of a lot, heck of a lot more people out there who are smarter than me. And that’s [00:33:00] just one, one person’s opinion.

[00:33:04] Joel Kennedy: [00:33:04] I I’m inclined to agree. And I, I think, I think if it’s probably, if you were going to pick between, you know, when is this going to have a meaningful, competitive impact?

[00:33:12] One, three, five years. I’d probably say five, unless, unless there are some FinTech providers that have some really nice out of the box packages that. Control for the risk factors that have precluded them from entering the market on mass prior to that. Right. So I can get this partner, FinTech provider, it’s white labeled, it’s got the flash and flare that I like I can work it into my operational systems.

[00:33:42] So I think to me, that’s, that’s the big thing is FinTech. And can they, can they kind of weave this into the fabric of their organization effectively because otherwise if they don’t then I just don’t see it. Um, Really being more than a flash in the pan. Well, it’s interesting.

[00:33:56] Mark VanGeison: [00:33:56] You mentioned that, you know, I, I, we, we try to follow [00:34:00] various different facets of, of, of the finance industry.

[00:34:04] And again, as a, as a kind of a commercial finance here, you know, Spartan discussion, asset based lender. We were always very interested to see what the likes of cabbage and on-deck were doing. If you remember on depth was a high flyer, it was basically automating, right. Um, Commercial loan underwriting. I’m sure they did much more than that.

[00:34:28] And they had models no different than what we would apply to in the consumer space, but they just did it in the commercial space. And I don’t know all the facts and details, but I do know at one point at a huge announcement, how they’ve aligned themselves with JP Morgan. If I remember JP Morgan was going to use them to help.

[00:34:46] Um, more efficiently underwriting some consumer loan. Well, I don’t know how well that lasts because I think, I think there, uh, how that worked, I think they’ve since ceased their partnership and, and on on-deck was purchased. [00:35:00] And the, the point of this is, you know, FinTech, clearly it matters. It matters because this, this industry is just it’s moving that way.

[00:35:12] I mean, I, you know, I think is. Most people know, you know, a shop like ours or a Santander or an ally, most decisions are automated, right? They’re done within seconds. You know, you got to get back, you got to get your call back to the dealer. Quickly, give the consumer an option and efficiently onboard the consumer and start collecting that.

[00:35:34] That’s not going anywhere. It’s going to continue. The more you can deploy artificial intelligence. Um, Uh, you know, E contracting, et cetera, we’re better off. You’re going to be, you know, from a margin perspective, we don’t see it going anywhere. Um, I think, you know, undoubtedly the likes of cabbage, uh, and on-deck had an impact [00:36:00] on how banks underwrite, commercial loans.

[00:36:04] And it’s just, what I think happened is, is, is the banks began to develop that technology. In-house again, to be more efficient, you know, if you’re JP Morgan and you walk into a branch and you’ve got a business loan for $300,000, well, you know, you’ve got to figure out how to do that pretty quickly because.

[00:36:23] You know, you can’t underwrite it like it’s a $300 million loan and that’s, that’s quite frankly, you know, Jimmy can attest some of the, the challenges that, that we’ve, that we’ve run into. Cause how you, how you underwrite and structure a $25 million senior warehouse facility and a $2 million are very, very different.

[00:36:46] Sure. And, and you, you can’t, you can’t take a shotgun to a knife fight, which is what we’ve done, you know, and you just can’t put all the bells and whistles in your process for you, one of your larger deals versus a smaller deal. So [00:37:00] again, we, we’ve tried to leverage some modeling to allow us to, to underwrite those more efficiently.

[00:37:08] Those are just some. You know, some kind of random thoughts, you know, we, again, we don’t, we don’t know what the, what the future holds. We do know that when you buy a car, it’s like going to the dentist. Most people dread the experience, right? You can sit there. So you’re blue in the face until the. F and I guy that you don’t want any of the products, but they continue to go through them and there’s gotta be a better way to transact.

[00:37:34] And, you know, FinTech is one thing capitals and other, I mean, at the end of the day, you’re, you know, you’re providing you’re buying loans, right. And, and you got to have the capital to do it. It’s a game of capital,

[00:37:48] Joel Kennedy: [00:37:48] talked a little bit about the, the increased price for, for wholesale rehab act, actual like vehicles that are appreciating.

[00:37:57] Over the, over the prior quarter longer, [00:38:00] um, for folks that let’s say, Hey, you know, I’m growing company, I’ve got to keep an eye on the portfolio. I’ve got to replenish it, but I have an eye to the future. Maybe I need to get with a Spartan in the next, you know, Foreseeable future, but I need to make sure that I’m managing my intake and risk and portfolio and losses.

[00:38:20] Have you guys seen anything interesting or would provide guidance to somebody who says, you know, Hey Jimmy and Mark, you know, this is my situation. I want to be worthy. Of of getting aligned with you guys, but I need to make sure that I’m doing this stuff intelligently. Cause, cause I’m thinking with, if the delinquencies hold up the way they are, then the losses, you know, if you normally have the steepest part of your loss curve between month, eight and 12, that may conceivably get pushed out.

[00:38:47] So measure, I don’t know how many months, but so now you’re looking at that future date to say, there’s probably going to be some, some defaults. And I just want to make sure that I’m not over my skis relative to what I paid out for that [00:39:00] vehicle and what I can get on, on return. So, you know, what are some ways that you guys think are meaningful for folks in that situation to be able to navigate that, that problem?

[00:39:09] Even

[00:39:09] Mark VanGeison: [00:39:09] right now, it’s just kind of staying disciplined with what they’re doing and not trying to go with competition, or they’re not trying to go chase the volume and getting away from kind of their, their, their based model. Typically, as it goes to kind of lengthen that term. Because of that long memorization, it’s just going to amplify that.

[00:39:27] Um, if that valuation does decrease and you’ve stretched the amortization, you’re just going to amplify that right there. So a lot of, it’s just kind of staying disciplined with what you’re doing and not just trying to chase it on. Yeah. And, and Joel, I think, um, and I may not answer your question directly.

[00:39:45] I mean, I think. Anybody who’s who’s in the business. And, um, hopefully if you’re new to the business, you know, you’ve at least talked with folks who’ve been in the business or you’ve done some sort of analysis. I mean, it’s [00:40:00] very cyclical and, and whether you’re buying loans or you’re underwriting a portfolio, you have to look at performance over a period of time.

[00:40:11] Right. And, and basically underwrite. To the main, I mean, I, you know, there there’s enough data that’s available in the public market that would tell you generally speaking, right. How certain credit scores perform in auto loans. Right. And, you know, yeah. You may get some data points that, that kind of deviate from the main, but by and large, there’s.

[00:40:38] There’s enough data and history out there to make an educated and informed decision on really? How do you underwrite and structure deals? So I would suggest to anybody that if you’re interested in this business or you’re, you’re new, or even if you’re not take the time to understand the data, because [00:41:00] history does.

[00:41:01] Repeat itself in this industry based on what we know. And again, you know, maybe things will be different this time, but, uh, how many times do you say that? Um, who knows what the answer is? I don’t know. I mean, the supply of new vehicles has to come to market. You know, you will, I have to assume that once the stimulus dollars begin to dry up and.

[00:41:22] People get back to work. Maybe demand won’t be quite as high. I’m not sure there will be drivers there. It’s it’s an ebb and flow market. It’s econ one Oh one and eventually the supply demand curve. We’ll, we’ll get back to normalcy, but who knows? I honestly don’t, you know, but there’s enough information out there to be educated versus, you know, Hey, this is great.

[00:41:48] You know, that car right there is worth. Yeah, 13 grand. And maybe it’s just a point in time. It is, but you know, Joel again, what do you, what do you do, right? I mean, that’s what, that’s where the market is. There’s [00:42:00] no, to my knowledge. And again, I’m not on our indirect side, so I can’t speak to what. There we’re doing, I mean, we’re, we’re always updating models and pricing and adjusting for the market, but you just got to use your experience and knowledge and use the information that, that you have at your fingertips and just make a good try and make a good business decision.

[00:42:23] Yeah, which for some of

[00:42:24] Joel Kennedy: [00:42:24] the smaller folks might be a little bit more difficult in order to amass that that data set that helps provide some of that guidance sticking to knitting, you know, is, is, is Jimmy. I mean, that’s something we’ve been saying for a long time, because that can, that can cause more, more risk-taking that doesn’t really pan out in terms of, in terms of reward.

[00:42:43] Mark VanGeison: [00:42:43] Well, there are, and Joel, you would know this. I mean, I think there are third party. Right. Data sources that you can hire to help develop scorecards. And I think, you know, I can’t say we’ve not used them, so I can’t speak directly [00:43:00] to, you know, their effectiveness nor would I, you know, endorse somebody specifically.

[00:43:05] But, but I do know that we do have. A handful of our, our borrowers, both indirect and buy here, pay here by the way, who use third party models and, and it helps them, you know, underwrite in, in this market.

[00:43:22] Joel Kennedy: [00:43:22] Yeah. I have experience with that as well. And the place where I think it is beneficial is in some of the stability factors, they tend to kind of work them into their models.

[00:43:33] And if you’re just looking at the FICO score alone, There may not be enough intelligence there to, for you to discern that, Hey, there’s been something that’s been disrupted, whether it’s the home life or the work-life and you just want to, you just want to have your eyes wide open as you walk into these things.

[00:43:50] Right? I mean, there are certain things that you’d stick on a pre-screen model. Like, did you have a BK in the last X number of years? And if so, how many and how recent were they? You know, those things are [00:44:00] meaningful and you can definitely weave them in. But if you have a model that does it for you, you know, where it’s kind of, it just removes the errors in my mind.

[00:44:08] One of the things that I saw in COVID along that point, it reminds me is, is I think there’s a lot of these, these nice to haves, like scorecards and AI and all the rest of this stuff that when you were a sub. $30 million company in terms of assets under management. I mean, you just couldn’t touch it cause you were, you’re just sitting there trying to keep the lights on and you’re trying to keep your funder from not complaining that you need to hire two more funders because it’s, you’re, you’re growing your business, right.

[00:44:33] You can only do so much. So the good news is I think a lot of that technology and a lot of those things have really come down in price and there are, they are accessible by that, that, that small market. And that’s something that I think is. I’m excited to see at, uh, at the upcoming conferences. So I’m gonna, I’m gonna, I’m gonna go ahead and wrap this up and Mark and Jimmy, thank you both for, for joining me today.

[00:44:57] And I think it might be a good time to make [00:45:00] mention there’s a couple of conferences coming up that all of us are actually going to be in attendance. We have the apps that independence conference at the end of this month, that’s May 24th to the 27th next week Lauderdale. And you both will be there, right?

[00:45:14] Mark VanGeison: [00:45:14] Um, unfortunately, Joel, we, we will not, Oh, you, we, we missed that one, but we will be, I believe there’s another apps, a conference coming up, uh, latter part of June. Um, if I remember correctly, um, which is in DC and then we’ve got in IADA that’s in August, um, out in X’s in generally we’ll, we’ll hit all the, um, state.

[00:45:41] Independent dealer association meetings. Jimmy is active in the California consumer finance association, and we’re very active and asked. Uh, um, so we’re, we’re in and around just about all of the conferences. It’s just the timing on, on this app. Sit down [00:46:00] in Fort Lauderdale. Didn’t work out for the team, but we fully support those guys.

[00:46:05] And, um, but yeah, you’ll, you’ll see us behind a booth or onstage at some point. I’m sure. 2021. Yeah. It’s, it’s

[00:46:14] Joel Kennedy: [00:46:14] so great to get back out there. Um, thanks Mark. I was going to see if you wanted to maybe go for a run. I bumped into Mark on a, on a jog, I think at one of the last conferences out in Chicago, I was out right with Peter Sayer and we

[00:46:25] Mark VanGeison: [00:46:25] bumped that up.

[00:46:25] I think you were running so fast. I’m surprised you even knew it was,

[00:46:29] Joel Kennedy: [00:46:29] uh, that ain’t me. That ain’t me. I run, I don’t run fast.

[00:46:35] Mark VanGeison: [00:46:35] Peter’s a great guy. If you see him, please say, although I have not, I will not in a while. And I know he’s participant in the industry and

[00:46:43] Joel Kennedy: [00:46:43] I’d be surprised not to see him in his home state.

[00:46:45] I mean, that’s his home state. So he’s Peter. If you’re listening, you got to show up now, brother, if you don’t have a ticket you’re you’re

[00:46:54] Mark VanGeison: [00:46:54] send me a picture. Send me a picture. I will, I

[00:46:57] Joel Kennedy: [00:46:57] will. We’ll make you jealous. Well, uh, [00:47:00] Mark and Jimmy. Uh, guys is the Spartan financial. And, and do you guys want to want to give the, the website or what’s the best way folks, you know, want to get in touch with you and start?

[00:47:12] Mark VanGeison: [00:47:12] Yeah, I would, I would say, um, uh, you can get us off our company website, which is a C Uh, you can also, um, reach out, Jimmy, do you might want to just give me your email address? Do you mind doing that? Sure. Not, not at all. Um, I’ve actually got two. It can to be James dot

[00:47:39] Yeah. Multiple avenues to get in touch with Jamie Rambo.

[00:47:42] Joel Kennedy: [00:47:42] Yeah. Well, it makes it easier to travel under an assumed name. Flexibility. That’s good. And with a name like Rambo, you, you to watch your back. Well guys. Okay. So it’s been Jimmy Rambo and Mark baggies and from Spartan financial guys. Thank you so much.

[00:47:58] Mark VanGeison: [00:47:58] Thank you very much. [00:48:00] The consumer five podcast

[00:48:02] Joel Kennedy: [00:48:02] has been brought to you by Northbridge loan software. That accelerates change. We’d also like to thank the national automotive finance association, the only trade association, exclusively serving the non-prime auto financing industry.

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