Dear "Brusselsprout"
Thank you for your question...
Mr. Ritter took the time to write out his thoughts about the current economic situation and has sent them to us for this discussion forum. Mr Ritter stated:
The US economy is under pressure on several fronts. There is a federal election coming soon and pillars of the US economy are looking much weaker than they have in my lifetime. I am not certain that we have seen the bottom or all of the fallout from this market correction yet. As this fiscal year ends I think we will continue to see corporate earnings impacted by more write downs. So the question that matters most to our employees and shareholders is: What does this mean for CarBiz?
Several months ago CarBiz announced that it would be embracing a higher priced vehicle model and subsequent auto loan. We also made it clear that we expected to see inflation and higher fuel prices impact the consumer market and took steps in our underwriting of auto loans to accommodate those changes in the market. We have done both of these things.
CarBiz is an automotive finance company, so making these adjustments several months ago provided us with the ability to absorb a reduction in unit sales but because of the average sale price increases, the total company revenue would not be negatively impacted. With the adoption of tighter underwriting criteria we began improving the portfolio quality so that we could absorb the eroding economic conditions that we believed were imminent.
The good news is that we have seen no reduction in unit sales volume and in the first half of Q3 but we have seen a substantial increase in the quality of the underwriting as well as the average sale price, while maintaining gross margin percentages. The result is that we expect the 3rd quarter to see continued growth and move up to yet another tier of revenue. We do not anticipate any increases in operating expenses with the exception of interest costs and vehicle costs associated with the higher dollar volume of product.
On the corporate finance side, we see the credit markets in a state of change and although we have a solid lending structure, we continue to watch the credit markets closely and are prepared to make adjustments as we see opportunities present themselves.
In summary, I am optimistic about the balance of the year for CarBiz but do not see the same optimism in many other sectors of the market. To end on a positive note, I am hopeful that following the Federal election and some tough corporate year-ends this fiscal year, that we will see the bottom soon and begin the turn-around.
There is no doubt that a market turnaround will come, the question is when, either way, CarBiz management expects to see continued improvement in each Quarter through next year.
Carl Ritter
CarBiz CEO
