Blog_FeaturedImage_ChadStilwell_HowToFightGoliathandWin

How Data and Artificial Intelligence Help Independent Dealers Fight Goliath – and Win

More than 3,000 years ago in the Valley of the Shephelah, the Philistine army attempted to invade what is now Israel.

The Israelites met the Philistines and the conflict soon reached a state of gridlock. So the Philistines proposed that each military send its most fearsome warrior to engage in one-on-one combat. The outcome of that battle would determine the final victory.

The Philistines sent a 6-foot, 9-inch hulk of a man, armed to the teeth with a sword, spear and javelin.

Not surprisingly, no Israelite wanted to fight him – until a young shepherd boy stepped up with a sling and five smooth stones.

The giant laughed as the boy expertly wound his sling and fired a single shot that landed square in his opponent’s forehead, defeating the soldier and, in turn, the entire Philistine army.

We all know this as the story of David and Goliath. But you might not have read author Malcolm Gladwell’s take on it.

Gladwell pointed out “slingers” like David were so accurate they could hit birds in flight. And the force of a single shot carried the same stopping power as a .45-caliber handgun.

We commonly think of David as the underdog – and he would have been if they engaged in hand-to-hand combat as Goliath expected.

But David literally brought a gun to a knife fight. He had the advantage, and he knew it.

The Great Equalizer

Today’s independent auto dealer knows what it’s like to fight Goliath.

Either you finance your customers with a bank and lose the upside or battle to find your own (expensive) financing. And the few platforms offering real-time, actionable data are only available for franchise stores or cost a premium.
Which is better – prime or non-prime?

You probably know how traditional banks would answer that question. Prime loans are historically more reliable and therefore considered a safer investment. But that safety comes at the price of low returns.

Non-prime deals, on the other hand, provide high yields but have less predictability. Unfortunately, that lack of predictability leads to high interest rates for everyone involved.

Banks treat non-prime operations much the same as subprime consumers. But you don’t run a subprime operation, so why pay the high subprime rates?

If only we could solve the predictability issue of non-prime portfolios, we could find a true unicorn with tremendous returns and reliability.

Artificial intelligence could be the great equalizer, but it’s not accessible for the Buy Here-Pay Here industry. At least, that’s what most people think.

This is 2022. The industry is rapidly changing.

Until recently, the tools and information to solve the problem did not exist. But now we have the tools, along with decades of data on non-prime loans.

When we apply modern data techniques using artificial intelligence, we can predict non-prime portfolio performance with the same accuracy as prime. How does 98 percent accuracy sound to you? Imagine you know, with 98 percent certainty, what you would collect on every loan.

Suddenly, non-prime doesn’t seem so risky.

Tools are now available that provide slings to the Davids of the world. And I’m convinced independent dealers are beginning a data-driven technology revolution that will catapult them forward many years – or, potentially, decades.

Unlock Low-Cost Capital

Once we can forecast non-prime loan performance with the same accuracy as prime asset classes, the barrier to affordable financing for independent dealers is gone for good.

That opens the door for innovations such as a reducing-interest-rate line of credit that offers unlimited borrowing capacity, the lowest interest rates and the highest advances.

Such an option is only possible because we first removed the uncertainty of how each portfolio will perform.
Thanks to sophisticated data analytics, independent entrepreneurs can finally access the same borrowing advantages as mega-sized franchise dealers.

You Don’t Know What You Don’t Know

Picture this:
Your family gives you a metal detector for your birthday. It’s a funny gift, and you put it in the closet.
A few weeks later, while doing some yard work, you decide to run the metal detector over your lawn. Before you know it, you’ve uncovered a buried suitcase filled with gold left by the previous owners.

It was there the whole time. But you didn’t know you had it – or how to get to it – until your trusty metal detector pointed you in the right direction.

As a BHPH dealer, your metal detector is robust, real-time data analytics. Without accessing that kind of data, you might be perfectly happy with your dealership’s performance. But there’s a massive gold mine waiting to be discovered, if you look in the right spot. Wouldn’t you want to know where the untapped gold mines are at your store?

Data can empower you to:
• Pinpoint specific action steps, such as changes to LTV or income requirements, that will maximize the performance of your loans.
• Determine which inventory you should buy.
• Identify your most profitable and most likely repeat customers.
• Accurately forecast your portfolio performance down to the individual loan level.
• Compare your performance with national and regional trends.
• Know for sure what your loans are worth.
• Perform “what-if” scenarios to better optimize your operations.
• Access customizable graphs and charts representing millions of data points
• Adhere to fair lending practices and achieve better compliance.
• Have the freedom to be more proactive and less reactive.
• Stop winging it and start making informed decisions based on data.

The Future of Auto Finance

It may be groundbreaking today, but advanced data modeling will soon become standard in the world.
As a result, the underserved, underbanked and previously risky independent segment of auto finance is rapidly becoming a viable asset class as data helps bring Wall Street to Main Street.

And that’s the exciting part. It means independent dealers like you can now access low-cost, low-interest capital to reinvest into your business and stop giving your profit to others.

So, wind up your sling. It’s time to take down Goliath – and finally build wealth.

Read the original article published by BHPH Dealer Magazine here.