Despite the ongoing shakeout among subprime lenders, General Motors Acceptance Corp. is aggressively expanding a 1-year-old subsidiary, Nuvell Credit Corp., to make car loans to high-risk consumers.
GMAC bought Little Rock, Ark.-based LSI Holdings Inc. last year, and renamed it Nuvell. The operation currently makes loans in 17 states and expects to expand into five more by the end of the year. By the end of 1999, Nuvell hopes to do business in 40 states.
That's an ambitious agenda at a time when personal bankruptcies and vehicle repossessions remain stubbornly high. Nevertheless, Nuvell President Tommy Pritchard says he is optimistic he can pull it off.
'It's getting better every day,' Pritchard said. 'We intend to be a partner with the GMAC dealer group and help them deliver cars.'
Pritchard, 49, was interviewed by telephone Oct. 16 by Staff Reporter David Sedgwick. Edited excerpts follow.
Last year, you launched Nuvell in two test markets, Illinois and Georgia. How many dealers took part?
We wanted to roll out the program for a select group of dealers. We had 25 dealers in each market. For the most part, they were in metro and suburban areas. From there, we rolled out into states in the same general area. Now we are in 17 states, coast to coast. We'll be in 40 states by the end of 1999.
What types of vehicles does Nuvell finance?
We finance new vehicles and used ones up to 5 years old. The majority of our volume is 2- and 3-year-old cars. The average loan is about $13,000. That's typical of the industry for 2- to 3-year-old cars. About 20 percent of our loans are for new vehicles, and 80 percent for used cars.
What did you change after you launched operations in your test markets?
We changed Nuvell's fee structures for dealers. We also changed the percentage (of a car's value) we are willing to loan for a particular customer. There was some tinkering. We feel we understand the risk.
Who is your target customer?
Our target market is 'nonprime.' It's a customer with credit quality just below GMAC but above some of the true subprime borrowers. It's a niche. It's the individual who has encountered a difficult time but recovered and has the capacity and willingness to pay.
Fairlane Credit - Ford's nonprime lender - wants to move such customers up to Ford Credit as their financial situation improves. Do you plan anything similar?
We are developing a program to 'upstream' the customer to GMAC. That is definitely the way we would like to do it. It is still in development. (If the customer's circumstances improve), we could move him to GMAC on his next car loan. By way of referrals to our dealers and GMAC, we would develop a list of prospects. We would allow the dealer to 'prospect' the customer.
Over the past year, half a dozen subprime lenders went bankrupt. Do you believe the worst is over?
Based on what we've seen in the marketplace, we are not convinced the shakeout is over.
Industrywide, about 20 percent of subprime borrowers have their vehicles repossessed. How does that compare to Nuvell?
We are relatively close to the industry average.
Lenders have lobbied Congress to tighten restrictions on consumer bankruptcies, to make it more difficult for borrowers to default on loans. Congress failed to pass that legislation. What is Nuvell's stance?
We are in favor of bankruptcy reform. We are supporting congressmen who want to revise the 'cramdown' provision. That provision allows a borrower who declares a Chapter 13 bankruptcy to write down the value of his debt. For example, he can take a $20,000 loan and write it down to the value of his car, even if the car is worth only $12,000.
Has Nuvell seen a lot of bankruptcies among customers? Does the industry trend affect you?
The industry has seen a dramatic increase in bankruptcies over the past 10 years. We are being impacted by what you are seeing in the industry.
Do you securitize your loans?
There are no plans to do so at the present time. It's something we'll revisit. We are always looking for the lowest cost of funds.
How optimistic are you about Nuvell's growth prospects?
I would consider it a growth industry. It certainly is for us. Being a young company, we do see tremendous growth going forward.
When do you expect to do business nationwide?
We would not anticipate being in all 50 states. About 1,200 dealers are working with Nuvell now. By the end of 1999, we will be in 40 states, and we will be serving in excess of 2,500 dealers.