"What can we do to claw back dealer margin?" Erik Day asked himself not long ago after attending a finance industry conference on crowdsourced funding for new business ventures.
It didn't take him long to zero in on an opportunity near to his heart as CFO and partner at Warren Henry Automotive Group in Miami: dealer-owned captive finance.
Day is now finalizing plans for an in-house, dealer-funded finance company at Warren Henry, a Jaguar Land Rover and Infiniti dealer, bringing together funding sources for new- and used-car leases, loans and insurance products. Once his plan comes together, Step 2 will be enlisting other U.S. retailers.
Day believes Warren Henry and other retailers are missing out on profits by entrusting finance to outside lenders.
"I don't mean the factory captive finance companies," he clarifies. "We need them for the majority of our transactions.
"I'm talking about recapturing the business that dealers have given to third-party companies."
The mechanics would not be so daunting, he says. A lending syndicate would advance funds to participating dealers to originate leases, he says. The amount dealerships could draw out would be a multiple of the amount they pay in the form of an insurance policy. The insurer would act as a risk cushion to the lending entity. For example, $500,000 in insurance might guarantee a $5 million line for loans.
Day anticipates being up and running in the second half of 2016.