How 2 major players navigated tax-refund delay

CARY, N.C. - 

Think your buy-here, pay-here operation has been the only one impacted by the delayed release of tax funds to certain consumers? One of the largest BHPH players as well as a finance company that books plenty of non-prime originations discussed the situation recently.

First, a little information background from Cox Automotive chief economist Tom Webb. Because of the new federal mandate requiring tax refunds involving the Earned Income Tax Credit or the Additional Child Tax Credit to be held until Feb. 15, Webb noted that year-to-date tax refunds though Feb. 10 were down 69 percent, or $65 billion, from a year ago.  “But then the flood gates opened,” according to Webb, and a record $74 billion in tax refunds was distributed during the single week ending Feb. 17.

As of Feb. 24, Webb indicated year-to-date tax refunds were down 10 percent or $15 billion.

“The unusual flow of tax refund monies this year appears to have had less of an effect on dealers than one might expect, especially since other retailers (most notably, TV and appliance stores) did notice a significant impact,” Webb said in his commentary that accompanied the release of the February Manheim Used Vehicle Value Index.

Meanwhile, the leadership at both America’s Car-Mart and Santander Consumer USA (SCUSA) discussed the impact that tax-refund delay has had on their respective businesses. Car-Mart president and chief financial officer Jeff Williams responded to questions about the topic when the company that has a network of 140 BHPH dealerships throughout the Southeast released results from the third quarter of its fiscal year on Feb. 21.

“It’s a little hard to tell,” Williams responded when asked about the percentage of customers in Q3 who typically used their tax refund to purchase a vehicle. Car-Mart reported that its Q3 retail sales softened by 1.3 percent to 10,866 units, down from 11,013 units a year earlier.

“Last year, the tax money was out basically for the last week of January. So we feel like, looking back, that we had maybe 300 sales last year that didn’t happen this year because of the timing of tax refunds. And yes, theoretically that should all roll into the fourth,” Williams said.

“But the money has been delayed a full month. We’re just now receiving it,” he continued. “So there is some risk that it may be a little lower this year, but our expectations at this point are that the initial fall in the third quarter, if we execute the way we’re planning to, should roll into the fourth quarter with the volumes.”

Over at SCUSA, the tax refund topic came up when the finance company hosted its 2017 Analyst and Investor Day in New York. An attendee asked SCUSA about the subject in light of Car-Mart discussing it, too.

“What we did see up until frankly about a week ago was what we normally expect as we get into February, to start to see application volumes start growing due to tax season impact. We had not seen that early in the month.

“We did start seeing at least what appeared to be the initial signs of some higher app volumes about a week ago. So we'll see,” SCUSA chief operating officer Rich Morrin said during the event on Feb. 23. “Obviously we'll have to see if that trend kind of continues, but it seems like, given the delays, it's definitely slowed down how quickly people have been going at least into car dealerships to spend that money.

“We have not seen anything significant in terms of modification differences as a result of the delays. So what we would expect to see if the trend continues over the last week is that maybe the backlog is starting to unwind and people are starting to receive their refunds and we’ll see if they continue to go buy cars with them,” Morrin continued.

SCUSA president and chief executive officer Jason Kulas immediately added, “The key word there is delay. The refunds are coming. They just have been delayed. So I think that's a really important factor to remember.”