Exeter Finance Corp.’s new software platform, which accelerates decisions on customer credit applications and speeds sales transactions, is making it easier for dealerships to move cars.
The computer upgrade has translated into business and revenue growth for Exeter, says Thomas Anderson, the subprime lender’s new CEO.
He also says the company has reversed a strategy of putting branch offices around the country, consolidating 27 branch into two centers, one in Texas and a new one Utah, which will handle originations, servicing and funding.
Anderson, 51, is new to auto finance but not new to being in charge. He joined Exeter as CEO in November, after holding the same position at several other companies, including AmeriFee Financial, a medical finance company owned by Capital One Financial Corp. Most recently, he was CEO of Education Dynamics, which provides marketing information and technology services to colleges and universities.
Exeter, of Irving, Texas, grew its portfolio of outstanding loans from $150 million to close to $3 billion from December 2011 to January 2015, Anderson said. The lender, which makes subprime auto loans through more than 8,000 mostly franchised dealerships, concentrates on borrowers with FICO credit scores between 485 and 625. It is owned by Blackstone Group in New York.
Anderson spoke with Automotive News Special Correspondent Jim Henry.
Exeter has grown a lot. Where are the increases coming from?
I’ve only been here about three months. I’d love to take credit, but … 2014 was a pretty big year, a transformational year for Exeter. The company has grown very fast in the course of the last few years and just finished rolling out a new origination platform.
What do you mean by a new platform, and what are the practical effects on dealerships?
There are very significant implications for dealers and for [Exeter’s competitors]. It is much, much faster. What used to take north of 20 minutes to turn around a credit application, we can now do in less than 20 seconds, often less than 15 seconds.
It’s obviously very much faster, which is important when the dealer is sitting there wanting to know what the answers are. Equally important, if the first callback doesn’t meet what the dealer needs to do, we can restructure fast, too.
The bottom line for the dealer is it makes it easier to sell cars. Relative to the competition, we’re fast, we’re flexible, and obviously that has translated into more business for us as well.
It sounds like the new platform makes automatic decisions on credit apps. Is that right?
With our new origination platform we have taken the art of underwriting and made it a true science. We have taken that expertise and put it in a computer system. For us, two things have changed. One is we don’t need that same army of human underwriters. The second is [nowadays] people know us; they don’t have to learn who we are. And the truth is nobody ever went to a branch to do business. What they care about at the dealership is they want to know when they call us it’s going to be “John” or “Sally” or whoever they know, on the other end of the line.
So from 27 branches, we are moving to be just in the two service centers. We will be finished with that transition probably by the end of March. We will still have a large number of folks around the country who will call on dealerships. But the underwriting, the verification and the servicing will happen in the two service centers.
Subprime has a reputation for being more labor-intensive than prime. Beyond auto-decisioning, are there any additional steps?
There is still a verification process. We can auto-decision very fast, but we still have to verify some of that information. Not so much in prime or superprime, but in subprime, small differences really matter. With an 800 [a high credit score] you can be off by 5 percent or something, and it doesn’t really matter. But in really deep subprime it would.
So it’s auto-approval, but the approval is provided to the customer subject to verification?
Correct. Either we have the information we need -- or if it’s the higher end of the [credit] spectrum it doesn’t need to be [verified] -- or we get what we need.
What do you do about making exceptions?
People had a view of underwriting as this art, not science. My own personal point of view is it’s just not true. The proprietary work I’ve done, if you looked at 100 different outside examples of consumer credit or insurance, where you have human underwriters versus a [computer] model, the humans underperform the model in 100 percent of the cases. Humans following the rules most of the time and making exceptions some of the time, frankly, aren’t very good.
In the older school, the art of underwriting, different levels of seniority are given the right to make exceptions. The way we apply it, there are no exceptions. We do not allow humans to override the credit policy.
To auto-decision in subprime, do you have to price higher in order to cover more risk?
Like anything else, all of this is balancing risk versus price. This is a highly competitive market. In a dealership it would be extremely unusual to send out [credit applications] to just one lender. We’ve got to price for the risk, but if we don’t price competitively, we don’t get anything.