EDITOR'S NOTE: This is the second piece of a two-part look at nonprime loans. You can read the first here.
High household debt levels are helping usher in a new kind of nonprime car buyer, one who should be seen as a victim of circumstance and not as someone to avoid, said Hector Bosotti, national trainer and a consultant for Toronto-based Wye Management.
“Job loss, temporary or permanent ... separation or divorce, and disability, illness or injury, or someone who had to stay home because of a loved one and had to forgo income for their family — those are victims of circumstance and not necessarily credit criminals,” Bosotti said.
These types of consumers, who have average credit ratings but higher debt-to-income ratios, are more desirable than the nonprime buyers of the past, he said. Yet fewer than 10 per cent of new-car dealers market directly to customers with credit difficulties.
“A lot of dealerships don’t go after the nonprime market because they’re afraid it’s going to tarnish their brand,” Bosotti said.
Credit market debt as a proportion of household disposable income edged downward to 177.1 per cent on a seasonally adjusted basis in the second quarter of 2019, compared with about 177.5 per cent in the first quarter, according to Statistics Canada figures quoted by the Globe and Mail. That’s up from about 100 per cent 20 years ago, said the Bank of Canada.
In other words, Canadians owed about $1.77 in credit market debt, which includes consumer credit, mortgages and non mortgage loans, for every dollar of household disposable income.
“Nonprime is an important profit centre for dealers,” said Michael Buckingham, senior director of auto finance for the J.D. Power Information Network.
“Canadian dealers have not been as aggressive as U.S. dealers pursuing nonprime.”
Most dealerships never get the training to attract these buyers in a way that doesn’t damage their image, Bosotti said.
He recommends dealers use social-media platforms to market their credit recovery program through the pay-per-click Google display network and through print media.
“A lot of new-car franchises don’t even advertise their own dealership,” Bosotti said. “They’ll advertise an [online] entity to apply to ... under a different brand so that they’re not associating credit-challenged customers with the new-car franchise.”
These methods, when applied correctly, are more efficient than using paid leads, which can cost hundreds of dollars and lead to closing ratios in the 10-per-cent range, Bosotti said.
“The results are superior in terms of closing ratios,” he said, “and also the cost is greatly reduced because you’re not paying someone else to do the job you could already do.”
