How easy it is to forget the credit crisis, forget the auto finance downturn in the late 1990s, forget the fundamentals of the automotive lending and leasing business.
That’s why re-calibrating the auto finance business model is so crucial.
Daniel Parry, who is in the process of founding a new auto finance venture called Praxis Finance, has been thinking a lot about business models lately. Parry was most recently a senior executive at Exeter Finance, itself a relatively young auto finance venture. With Praxis, he is determined to set its course for prudent risk management, as well as ample profits.
So what are Parry’s fundamentals of an auto finance business model? Well, he has 10. Here’s his list:
- Volume is not king, performance is
- Operations must not drive strategy, but execute on it
- Incentives and metrics must originate outside of front/back-end operations
- Flexibility is essential
- Knowing the right strategy is irrelevant if the company is not set up to move and scale to what the market will provide
- No lender can be efficient or effective at every business function — consider outsourcing non-strategic functions to those who can do it better and cheaper
- Cost is cost, whether it comes from OPEX, NCL or cost of funds
- Digging deeper into the credit spectrum will erode leverage and likely increase operating costs – evaluate the cost/benefit
- When hiring, look for empire builders and those that see span of control as a reflection on their value to the organization
- 100 basis points of wasted overhead is exactly the same as 100 basis points of increased losses