Consumer Portfolio Services, Inc. Q2 2008 Earnings Call Transcript

| About: Consumer Portfolio (CPSS)

Consumer Portfolio Services (NASDAQ:CPSS)

Q2 2008 Earnings Call

July 16, 2008 01:30 pm ET


Charles E. Bradley Jr. - Chairman of the Board, President and Chief Executive Officer

Jeffrey P. Fritz - Chief Financial Officer and Senior Vice President


John Hecht - JMP Securities

Daniel Furtado - Jefferies & Co.

Sean - Wells Capital


Welcome to the Consumer Portfolio Services Second Quarter 2008 Earnings Release Conference call. Today's call is being recorded. Before we begin management has asked me to inform you that this conference call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Any statements made during this call that are not statements of historical fact maybe deemed to be forward-looking statements. Such forward-looking statements are subject to certain risks that could cause actual results to differ materially from those projected.

I refer you to the company's SEC filings for further clarification. The company assumes no obligation to update publicly any forward-looking statements whether as a result of new information, future events, or otherwise. With us here now is Mr. Charles Bradley, Chief Executive Officer and Mr. Jack Fritz, Chief Financial Officer of Consumer Portfolio Services.

I will now turn the call over to Mr. Bradley.

Charles Bradley

Thank you and welcome to our second quarter conference call. I think overall I was pleased with the results for the quarter. As everyone well knows this has been an exceedingly difficult market and continues to be. I think this market has now dragged on for what’s looking like almost a full year, both in terms of the capital markets in terms of the auto markets specifically, dealer sales were off, the financing business is off and certainly the capital markets have been no help, but in spit of all that we put our earnings that we expected as the company, the company is operating probably as well as it ever has, our collections are very strong our, originations are very strong.

The overall performance is just at what we would expect it to be unfortunately it’s in a very trying environment in both our industry and the overall capital market as a whole. So I think, the thing to focus on is what we do to sort of take advantage of all that. In some ways, for people who have been with the company for while Déjà Vu ten years ago.

1998 was something exactly like, it was certainly with the auto market versus the overall market, but that point being that our company has been there before, we know what we are doing, we know how to handle it and manage our way through it and as people might remember, you can do that, that will create lots of opportunities going forward and so our focus, as we’ll talk about a little bit. Its to sort of manage our ways through these difficult times take the time we have to take it to sort of make things better, improve things and then when things coming back, whether its three months, six months or a year from now to be in a position where we can take real advantage of the opportunities that preserve themselves.

With that I will turn it over to Jeff to go through the financial.

Jeffrey Fritz

That’s Brad. Good morning everybody, we will start with the revenues. The revenues for the quarter ending June 2008 were $98.8 million, that’s down 4% from $103 million of the March ’08 quarter and up about 3% from $95.8 million in the year ago quarter. The first six month of 2008 had revenues of $202 million that’s up significantly from the last years six months through June of ’07 of $182.3 million, and a lot of these period-to-period comparison that we’ll see this morning, you are going to see the outcome of what’s really happens in the marketplace over the last year.

So throughout ’07 you recall, we were able to grow originations pretty steadily up through and until the fourth quarter and since then we’ve significantly reduced originations and as a result of that our portfolio is greater today then it was year ago. However, it’s less than it was a quarter ago, and so we’re in currently in a mode where the portfolio is shrinking and a lot of the things that are driven off besides the portfolio are going to reflect to that circumstance.

Turing to the expenses, the expenses for the third, excuse me the second quarter $96.1 million, that’s down 3% from the pervious quarter, the March quarter of $99.5 and up about 7% from the $90 million end of June quarter of 2007.

Similarly the six month expenses for ’08, $195.6 million, that’s up about 15% from the $170.6 million in the first six months of 2007. Looking at the provision for loan losses $30.9 million towards the quarter ended June of ’08. That’s down about 11% from $35 million in the March ’08 quarter and also down about 33% from the, excuse me down about 6% from $33 million through the June ’07 quarter. The six months provision expense for 2008, $65.8 million, that’s up about 6% from $62.2 million for the first six month of 2007. Again the ’08 originations volume is significantly less than the same period in 2007 and even the second quarter of 2008 is significantly less than the first quarter of 2008 and significant portion of our provision is driven by the new volume, and so I think you’ve seen the impact on some of the numbers.

Pretax income for the second quarter June 2008, $2.7 million, that’s down 29% from the previous quarter of $3.8 million and down 56% form the year-ago, the quarter of $6.2 million. On year-to-date basis through June of ’08, $6.5 million of pretax income that’s down about 44% from $11.6 million for the first six months ’07. You may recall in ’07, really throughout ’07 we had significant write-ups about residual interest and securitizations which came to the conclusion is that, that most of that asset really round down throughout ’07 and so you had some revenue significant revenues other income tax of revenues in the ’07 periods from the residual interest write-up.

In addition in 2007, in the second quarter, we sold the portfolio charged off receivables, so to put that a little bit and perspective the year-to-date ’07 numbers included $5.3 million of other income that doesn’t really have any corresponding or recurring March for 2008. Net income for the second quarter $1.5 million that’s down 29% from $2.1 million in March ’08 quarter and down 57% from $3.5 million ended June ’07 quarter. On a year-to-date basis for ’08, $3.6 million net income that’s down 46% from $6.7 million for the first six months in 2007.

Our diluted earnings per share $0.8 for this quarter that’s down about 27% from $0.11 for the March quarter, and down 47% from $0.50 for the June 2007 quarter. The year-to-date earnings per share diluted $0.18 for the first six months of ’08 compare to 29% or $0.29 for the first six months of ’07. Moving to the balance sheet our free cash, our unrestricted cash balance at June 30 of 2008 is $21.8 million, that’s up significantly from $18.5 million in March ’08 and also compare to $13.4 million a year ago.

You may recall from our other announcements and I am sure Brad will discuss this financing further, that we raised $10 million right at June 30th, just a few weeks ago as of the sort of the first leg of a financing that we completed last week, as we had $10 million is reflected on balance sheet of June 30th . Restricted cash has really been pretty steady at about $177 million the last two quarters. A year ago the restricted cash of $261 million included about a $109 million from the pre-funding component, and of course that was due to that quarter securitization.

We did not do a securitization at the end of this quarter. We did do a securitization in the quarter, but now at the end of the quarter, in any case, it wasn’t pre funded. Finance receivables was balances, as I indicated are shrinking at a quarter-to-quarter basis in net finance receivables of $1.8 billion and down about 5% from the previous quarter of $1.9 billion, but it is up about 5% from $1.7 billion a year ago.

Our debt balances, our warehouse balance at the end of the quarter here is $148 million, that’s a significant reduction from $368 million at the end of March quarter and you recall around April 10th we did a securitization which in the pay down the warehouse balances in – we’re doing fairly nominal levels of originations to the use those warehouse.

Residual interest financing at the end of the quarter was $86.8 million compare to $90 million in the previous quarter and $28 million year ago. We recently restructured the residual interest financing subsequent to the end of the quarter and have subsequently paid that down to a level of $70 million.

Securitization debt $1.7 billion at the end of June of ’08 and that’s compared to $1.6 billion at the March of ’08 and that’s down a little bit from $1.8 million a year ago. Our long-term debt $34.5 million that includes the $10 million of debt that we’ve recently incurred and as of June 30 doesn’t include some additional debt that we incurred subsequently to the quarter.

Our portfolio, our consolidated portfolio is just under $2 billion, $1.979 billion at June 30. That’s down from $2.1 billion of March 2008 and $1.9 billion a year ago. The portfolio a year ago still consisted or included $10 million in off-balance sheet and service receivables and those receivables are already gone now and even last quarter and so the entire managed portfolio is really our on-balance sheet receivables.

The net interest margin, which is interest income verse interest expense for the quarter $53.9 million, that’s down 11% from $60.3 million in the March quarter and down about 3% from $55.7 million in the year ago quarter. On a year-to-date basis, the minimum $114.2 million that’s up about 7% from the first six months of 2007 of $106.7 million.

The risk adjusted NIM, which is the net interest margin less the provision for loan losses, $23 million for the quarter just ended that’s down about 9% from the first quarter of ’08 and it’s flat more or less with $23 million from the June of ’07 quarter. On a year-to-date basis, the U.S. adjusted NIM $48.4 million for the first six months in 2008, that’s at about 9% from $44.6 million a year ago.

The NIM of course is being influenced and will continue to be influenced by a general trend increase trending interest rates throughout ’08 and although interest rates are gone down somewhat for 2008 compared to 2007 the execution of our recent securitization resulted in a significantly higher cost of funds for that deal.

The core operating expenses for the quarter, $24.2 million, that’s up about 5% from the March ‘08 quarter and up about 4% from the year ago quarter. On a year-to-date basis, the core operating expenses $49.8 million, that’s up about 10% from $45.3 million for the first six months of ’07 and our one of our metrics kind of measure our efficiency of our operation. The core operating expense is a percent of the average managed portfolio, $4.8% for the quarter and its flat with the March of ‘08 quarter and down about 5% from 5% for the 2007 June quarter.

And lastly our return on managed assets, 0.54% for the quarter just ended, and it’s down about 24% for the March of ‘08 quarter and down 60% from 1.35% for the June of 2007 quarter on a year-to-date basis and a 0.63% for the first six months in 2008 and that’s down about 53% from 1.33% for the first six months in 2007.

I’ll turn it back over to Brad.

Charles Bradley Jr.

Thanks Jeff. I’m talking about the credit performance. It’s still lower than what we would expect. The DQ numbers for this quarter were 6.12% for the June quarter. I’ll talk a little bit from 4.8% or 4.82% in March for the previous quarter and 4.85% from the year ago quarter. In terms of delinquency, we now have a declining portfolio and so there is probably two effects, one is that that the portfolio is now starting to decline, also that the ’06 and ’07 vintages which all along were not quite as good as the earlier years, the ’04 and ‘05s, those are now reaching their peak loss periods. So we would expect the delinquency process this summer, but overall delinquency is certainly where we would expect it to be and well within reason given the portfolio.

In terms of the losses, the losses were 6.85 for the quarter. It compares to 6.66 for the previous quarter and 4.13 for the year ago quarter and again it’s a same thing and that the portfolio is beginning to age. Those two large year originations are ’06 and ’07 and are now reaching their peak loss period and so we would expect the losses to go up some, but again this is exactly were we would expect it to be.

If anything given this overall environment, we’re probably rather pleased with the performance in terms of collections given the economy and everything, but talking about how bad it is I think our portfolio has done rather well certainly compared to our peers. I mean our ’06, ’07 vintages are only up about 10% or 15% from where we might have expected them be or the ’05, ’06 vintages. The rest of the industry is somewhere between 25% and 50% increases on a comparative basis. So, certainly and somewhat because we don’t really care what everybody else is doing and we are happy with our numbers, if you compare them to everybody else we are probably exceedingly happy with our numbers.

Looking at the auction values, they are basically flat quarter-to-quarter. On a year-over-year they are down about 10% to 12%. I think the part that concerns most people is sort of the exposure in terms of the SUVs and large trucks. Our portfolio tends to be significantly away from that.

We only have about 6% to 7% of our vehicles that auction as large trucks and SUVs and so whether we can take credit for designing the programs to stay sway from those cars or you could say that just by the way our program works we don’t have a lot of those cars or trucks. Either way our exposure in terms of the large vehicles, gas guzzlers is significantly less and 6% to 7% should not have much on the effect on the overall performance and so again that will be component that we think is very healthy in terms of how the company should operate on a collection basis going forward.

Looking at the operations we have spent some time slowing originations down in this market. This isn’t the market we’re growing; it’s probably a real great thing to do. In an uncertain term the thing to do is to be conservative given its past history and expectations in terms of what happened the last time it sort of happened. We were able to cut production very significantly, very quickly. As a result we are in a very strong position in term of where we stand carrying loans on the balance sheet and we are not happy to get back to the capital markets as much as other folks might to.

We have some real staying power and along those lines -- but also the other thing we did is probably equally important is we spent very quickly the two really important things which I did mention in the last call which was we tightened credit significantly. The paper we are originating today is arguably the best paper and probably we’ll bear out to be the best paper we originated in at least 10 years. The paper should perform very, very well given the credit criteria we've tightened in different metrics, we’ve tightened and the early results and even the late ’07 paper and early ’08 paper’s been really positive.

Also we’ve take the opportunity to increase our pricing very significantly. We’ve raised our overall average coupon almost 200 basis points, not quite to focus and we raised our discount or increased our discount almost 700 basis points.

You take the combination of those three things increased coupon, increased discount and much tighter credit. The paper we are originating or in a position to originate today should be absolutely far and away the best performing paper we’ve ever had and the results of that we won’t see for another a year or 18 months, but when those results coming in, they should be very significant and very positive and having said that we’ve now got originations down only about 15 million or 20 million a month, but when this market turns and we have the opportunity to grow again given the footprint of the way we changed the model, again it could be very pleasing results.

The other thing we’ve done besides of those things is given the market and as much as everybody looks at the financial companies in the capital market, the dealers aren’t doing all that well either and we started to initiate some programs to work with the dealers to help them really rebuild their special finance and figure out ways to drive their business and sort of create some partnerships with those dealers teaching them how this all works while we have the time for lack of the better word. So when this market does come around, we are going to have an even strong relationship with our dealer base and have the real opportunity to grow very quickly and take advantage of the market.

Moving onto the financing as, Jeff pointed out we did get two very significant financings in the last 60 days. On one we raised $25 million of new capital, from one of our senior lender we’ve worked within the past. Given the market I think, that’s a very significant accomplishment or achievement in terms of raising money in this market. I think that shows what the company is capable of, it also shows the staying power of the company that people are willing to back us in this market knowing that we will work our way through and be take advantage of it when the capital markets come around.

We also restructured our residual financing. We paid some of it down. We have the opportunity if some of our targets are met to extend that debt an extra year and being able to do that, what we’ve done is sort of reestablished our balance sheet during these difficult times to be able to make it through the times and I think those are the first two steps in sort of some of the multi-step process to sort of firm up the company in terms of the financing, put the company in a operating position to sort of go through the current best times, but also be in a position to really excel when we start times clear.

Now we’ve done both of those things, our balance sheet is very strong, our operating model is very strong and so now what we need is the goofy capital markets to come back and give us the opportunity to really take off. We are getting those two things done, it’s very significant from where we sit today and looking at the capital market, a year ago.

I think everyone in our industry though “Gee, we’ll wait till the New Year and everything will be better,” Well obviously things didn’t get better they actually worse. I think, we’ve certainly since January have known the things probably weren’t going to get better or might not get better.

In terms of running the company, the object here is not to sit and say “Well it will get better in three months or six months” and then get in a position where you’re stuck and that’s obviously something we haven’t done nor that’s something we are going to do. As a result of that, what we are trying to do is to develop other things we can do; like I said work with the dealers, coming up with different ways to move our paper off balance sheet and of course slowing things down so that we have the staying power to get to the next level. We are in the process of looking at that.

We are trying to sort of wean our dependence on the capital markets somewhat in the securitizations market. I think, the way I things tend to work is when you don’t need the securitization market it will come back. I think planning on not having the anticipation that it will come back is probably the smart play. We are in fact, I mean exactly that.

I think the securitization market should come back, there is a lot of capital on the sidelines when it comes back in. We are going to be looking for assets to buy and finance and I think we are going to be in a very good spot to really access that market given that what they are going to be looking for at that time is company’s that have strong balance sheets, that have a good working model and have performed through these difficult time and we certainly have done all of those thing.

Our portfolio is performing very well from the capital markets point of view it might even be performing extremely well given the conditions and give what other company’s are doing. I think that in terms of touching on the equity markets, that certainly hasn’t been any fun on our stock, much like all the other stocks have tumbled, given anything I am saying we don’t think that’s really the right thing to be going but there’s nothing we can do about it particularly. We think as time goes forward, it actually corrects itself.

In terms of the future we think the rest of this year, given its current state of environment, it could be very difficult. We think that nothing is going to really improve. I think, like I have said it’s better to plan for the worst and hope for the best, that’s the way we are going to play it. We think the rest of this year could be soft in the capital markets, we think it could soften the auto industry, but nonetheless we think our performance on the portfolio should continue to be very well.

We think with the capital markets or the capital raising we’ve done, it puts us in a very strong position and certainly for the rest of the year and beyond and so when you get to the last part of it, it is okay. Now that we have gotten and that we are doing fine in a very difficult environment more opportunities are there and as people made a call 10 years ago there were significant opportunities to be had if you could get yourself in the right position, which we think we have.

Along those lines we are exploring other opportunities to see what we can do in term of strengthening the company either through acquisition or other opportunities and I think they are going to be plentiful given this environment. We think these rest of the years are going to be tough. We don’t know when the market is going to come back. Our real plan is to again be prepared so that when they do come back we are really in a good position to take advantage of it and between now and then see what opportunistic things we can develop.

Now, with that we'll open it up for questions.



(Operator Instructions) Our first question is coming from John Hecht of JMP Securities. Please, go ahead.

John Hecht - JMP Securities

Just a couple of moderate questions. You issued some new shares for a group associate with Levine and I think there was some loss. What should we consider for pro forma share count in terms of additional shares that we need to include in the diluted share count?

Charles Bradley Jr.

Hi, John. In the aggregate the new potential shares from the financings are the additional $5.5 million that you would want to put into the diluted, starting with this quarter’s diluted share count. Now on a year-to-date basis they’ll be sort of averaged in but the aggregate new shares are 5.5 and above.

John Hecht - JMP Securities

Okay, and the -- subsequent in the quarter you raised more senior debt. It was five and change at the end of the other quarter, how much will that be at the end of the third quarter?

Charles Bradley Jr.

Well, the base amount of the new debt that was on the balance sheet of June 30 was $10 million. Subsequent just last week we finished off that deal with an addition of $15 million.

John Hecht - JMP Securities

Okay, and then can you tell me -- just remind me I guess with Citi corp I think there are two pieces of that financing line of the revolver and the permanent, can you just remind me when were you given the updated terms when things reset and have to be renegotiated to get in, which pieces fall into which bucket?

Jeffrey P. Fritz

Sure. I mean the old deal has a $60 million revolver and $60 million term and at a time we had draw half the revolver in the full term. The revolver was due about a week or 10 days ago and then the term was due from a year from now and so what we’ve done is we’ve eliminated the revolver.

We have increased the term from $60 million to $70 million and then a year from now we have the option or if we have met certain conditions we can extent that debt an additional year, and so net of all that we have at least a year where we don’t have to anything, and then the extent then goes the way it’s supposed to. Its two year before that 70 is due and there’s so many amortization between now and then.

The fundamental part of what we wanted to do is given the current economic environment we didn’t really want to -- we’re not sure. Anyhow hopefully by next year everything will be great but if it’s not we want it to be in a position where we could leave that debt loan for yet another year.

John Hecht - JMP Securities

Yeah I understood, and can you give some commentary on the capital markets. You expect them and you’re planning the business strategically around them continuing to be tough, but can you give us a sense more about just over the new few months what deals have to done and senior sub fashion for instance, how do you just get that feel on pricing and anybody in the industry is going to address warehouse lines in the near future, what do you expect with respect to changes associated with covenants and details associated with those and how are you kind of playing your business strategically around those developments?

Charles Bradley Jr.

That’s a good question. I think America did deal I think a month or so, that one really well, so the capital markets are a little bit fickle in terms of when they are strong and whey are weak. Some people think they could get a little stronger in the fall, some people think it’ll be another year. Again our current strategy is to plan for the worst and I assume hope for the best.

I think personally there’s another company that did securitization this week, so I think the market should begin to open up between now and the end of the year. Whether it will be a stronger market than it was for America to do their deal or hopefully stronger when we did our deal in April, it’s a little tough to pick but one might guess you can get securitizations done hopefully before the end of the year given that -- and a lot of its done in the senior sub fashion or with a wrap, my guess at the moment is you might reemploy the senior sub, but again a lot will depend on sort of what’s happening in the industry.

In terms of our credit lines, credit lines aren’t due until September or November. I think we are going to be in a position where we should be able to work with those lenders; they might be -- one of the relevant things that we probably need is large lines at that time to the extent when we were doing we would probably scale them backs some. I think they might be slightly more expensive returning on the market but that’s sort of the plan for now.

We would expect that the capital markets hopefully would strengthen this fall, but again it’s much more sort of my personal feeling than either the way we’re going to plan for the company or the way that it really may happen. I think there is lot’s of opportunities that there seems to be an appetite for people looking for assets and so that creates other way to sell things. I think we’re going to be opportunistic and take advantage of what we can see.

The important thing is all of those people that are in doing the capital markets, doing the securitization or other loan sales or whatever they senior staff or otherwise, what people are going to look for is performance and that’s going to our strong suit for the rest of this year or next year because our portfolio is going to do well and so we’re going to have to see, but I think given the economic environment and how well our portfolio has performed so far that should be something that sort of leads the way in terms of how we do things. That’s again -- it’s a little hard to guess given part of when the markets going to shape up over the rest of the year.

John Hecht - JMP Securities

Okay. This was the (Inaudible) -- what information – was that a senior sub deal or was it a sub prime model, can you explain?

Charles Bradley Jr.

In USA, the auto men did it senior sub.


Thank you. Our next question is coming from Daniel Furtado with Jefferies. Please go ahead.

Daniel Furtado - Jefferies & Co.

Can you tell me what the current age of the portfolio is right now?

Jeffrey P. Fritz

It’s about 18-months at June 30, and I think Brian mentioned the portfolio is going to be 18, that compares to about 14 months at December 31, 2007.

Daniel Furtado - Jefferies & Co.

Okay. And what’s the cumulative loss on that portfolio to date?

Jeffrey P. Fritz

Well, the couldn’t give that cumulative losses of that whole portfolio, because we would look at it in quarterly or monthly pools, but our target loss is for really everything expect the ’08 originations would be in the 12% range and then for the ’08 originations, we’d expect cumulative net losses to be significantly less maybe in the 10% or 11%.

Daniel Furtado - Jefferies & Co.

Okay. I’m just trying to figure out on that 12%, what's been recognized? What the experience has been to-date? Are you in the 8% of that 12%. Assuming no more originations and you just let this thing run off, you think you’re at that eight of 12 or six of 12 or 10 of 12, what do think cumulative losses in the portfolio are right now?

Charles Bradley Jr.

We’ll probably have to look at that and give you a better number rather than just guess that one now, we can do that for you.

Daniel Furtadop - Jefferies & Co.

Okay, I appreciate that term, and how should I think about allowance for losses. Should I think of it as a percentage of the portfolio or some other metric and what do you suggest that outside is looking in?

Jeffrey P. Fritz

It’s again you have to consider sort of as the portfolio ages the allowance as a percentage of portfolio is not necessarily going to stay there at a fixed amount of tax, it’s decreased somewhat over the last few quarters and we’d attribute that somewhat to the lack of significant new originations and the aging of the portfolio.

As a portfolio ages and sort of moves out on this cumulative loss we can sort of picture a cumulative net loss occur as the portfolio ages and moves up to curve from 14 to 18 and maybe some higher number of months. The cumulative net loss tends to flatten out a little bit and so therefore, looking forward says for the next l2 month losses you would have potentially a decreasing number and so that will impact the amounts.

Although the allowances percent of the portfolio has shrunk similar, if we also maintained a separate allowance from the re-inventory portion of the portfolio and when you aggregate those numbers together it’s been pretty flat over the last few quarters.

Daniel Furtadop - Jefferies & Co.

Okay and usually your net charge outs increase about 200, points from the second and the third quarter over -- I thought you’ve been pretty predominantly on balance sheet. Is there anything to suggest that this third quarter will deviate from that, a typical increase?

Charles Bradley

We might want to an analysis on that but probably not would be my guess.

Daniel Furtadop - Jefferies & Co

Okay, how about economics stimulus checks, is that something that you think has been beneficial or you can’t track it, or what’s your gut feel on that?

Charles Brandley

My gut feel is, they should have showed up two months ago, they don’t seem to have showed up yet. I think the fact; ironically this month looks like it might be getting some effects from that. I think that, probably the question will be answered better next quarter, but July generally not a great month and it’s only half over give or take, but it seems to be sort of having an interesting perk to it.

Daniel Furtadop - Jefferies & Co

I heard earlier, you’re thinking it was 15 million to 20 million in originations on a monthly basis going forward. That's fair for me to use in my model?

Charles Brandley

Sure, that will be fine.


(Operator Instructions). Our next question is coming from Cherly with Wells Capital. Please go ahead.

Sean – Wells Capital.

Hi, this is actually Sean for Cheryl. I was kind of curious obviously you guys are making concerned efforts to use to drive on your exposures. I was just kind of curious to what degree just put your traffic is also having an influence on that or have you seen this, because you’re drawing down, these aren’t alternatives for your traditional customers? So, trying to get more of a macro sense what’s happening at the dealership level?

Charles Bradley

I mean that’s also a good question. I think dealerships were in tough shape. As much as people could say, gee everybody is charging a lot for these loans, but as much as our industry now is starting to back off, the rumors we hear is that the auto dealers are having trouble that it hurts their business significantly, the fact that they are having trouble selling new cars isn’t particularly great and now all of a sudden they are having trouble financing used cars. So that’s put an increased burden on the dealership.

Then they even go to the next step, which is to the customer, a whole lot of people that used to be able get financing gear, given it all time credits, are now going to buy here, pay here was they are literally paying significant amounts for half the car per sale. I mean to buy that, our industry has almost created as the bridge between buy here, pay here and regular time financing, and as we find and sort of drawn in, a lot of those customers are now falling in where they’re actually paying more.

So, I think concerned on the very basic level of people with poor credit or bad credit, its hurt them significantly, it’s hurt the dealer significantly and obviously it’s had an affect on the finance company. The good news all that is, like I said one of things more of our current objectives is to work with the dealers to sort of given of course and how to really, get these customers in, constructor their deals better, so that we sort of have stronger partners as we go forward and the other part is, when the market comes along and we can offer that financing, I think that’s were the dealers and then the customers will all be there to really, grow this market back to where it was and I think the stronger companies will do very well.

Sean – Wells Capital

What degree do you think the cap just are performing well or forward regards to our standards are they still maintaining standards or is everyone just in general tightening?

Charles Bradley

I think the cap is to go that one that one next level. The cap has really backed off in terms of what they financed a while ago and I think they’re maintaining that. They haven’t been -- as much as they might be tempted to reach down the credit spectrum a little bit to try and reach their business. I think they learned three years ago that really doesn’t work and so this time around they kind of stayed away from that. So, I think they had maintained their discipline.

We haven’t seen a lot of the captives really trying that hard to or we haven’t really seen it at all in terms of them trying to help the big company to sell more cars, which I think is the better move. I think all they would be doing is gearing themselves. It’s always a steadfast rule through history is that prime guy should not be financing sub-prime and keep them where they should be and keep them -- at least try to get them healthier, they shouldn’t do it and they haven’t, so we have not seen them reach down.


Thank you. At this time I would like to turn the floor back over to Mr. Charles Bradley, for any additional or closing remarks.

Charles Bradley

Thank you. Again thank you all for attending the call. I think we are pleased with the quarter in a difficult economic environment and we think we’ve gotten a lot done lately that’s really put us in a much better position both within our industry and in terms of where we are going to go going forward.

I think we’re now to the part where we can start looking at the opportunities and where we can do to sort of get us on that next level as we wait for this, the overall economy to sort of turn the corner, which hopefully will be soon than the later, but either way I think there is something that we can do that will be, worthwhile during that period of time.

Like I said, probably the most important things is unfortunate in some ways and good in others. We’ve done this whole thing before, we have a lot of confidence in what we’re doing and a lot of good results have come out so far. So, we look we continue and as we go forward. So, thank you for attending, and I will talk to you next quarter.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to All other use is prohibited.


If you have any additional questions about our online transcripts, please contact us at: Thank you!