NICK has a couple of growth opportunities it can try to exploit in the coming years. Most broadly, the subprime market itself is growing faster than GDP. Primarily this is due to the cyclical rebound in auto purchases, auto prices, and increased use of debt (across the credit spectrum) to make those purchases. To the … Read more →

One could object that it is aggressive to use a 12x P/E when NICK has traded at a single-digit P/E multiple for many years. But as I’ve already stated, my opinion is that NICK’s past valuation is irrational. So in the interest of consistency I do not permit this objection. Besides, disagreement about the proper … Read more →

It is worth repeating that new CEO Ralph Finkenbrink’s first major action after becoming CEO was to tender for 40% of outstanding NICK shares at 6-7x NICK’s post-tender, mid-cycle earnings. That created an awful lot of value for shareholders. Further, the tender told us some important things about Mr. Finkenbrink. To begin with, it suggested … Read more →

How much is NICK on pace to earn this year? In the most recent quarter, NICK reported a 7.38% pre-tax profit yield. After a 38.5% income tax, this equals a 4.54% net margin. Apply this to $331 million, which was the balance of loans receivable (gross of loss provisions and dealer discounts) ending the quarter, … Read more →

As you may have noticed from the previous posts, NICK’s loss provision ratio has remained elevated essentially since the crisis. This does not indicate that NICK’s balance sheet is still stuffed with bad loans made prior to 2008. Remember, loans are typically paid down within four years of origination (or written off even sooner, if … Read more →

Let’s focus closely on the economics of the NICK business model. Here is how average transaction for NICK works, roughly: The dealer buys a used car for $7,500 and sells it for $10,000. The dealer provides the buyer with financing for around 90% of the retail value of the car. The loan to the car … Read more →

There are a number of different business models at work within the subprime auto lending industry. I find it helpful to categorize these models using a spectrum of loan quantity versus loan quality. I will start with business models that prioritize quantity, since this model predominates the industry. Most of the large lenders (e.g. Wells … Read more →

Macro Level Auto finance is big business. The total principal balance of outstanding U.S. automotive loans approaches $1 trillion, meaning there is about $3K of auto debt for every man, woman, and child in the land. This shouldn’t be a shock when you consider that the average person’s first- or second-most valuable possession is his … Read more →