AUTOMOBILE FINANCE

Sub-prime Auto Finance is estimated to be a $150 Billion p.a. business in the USA. Finance Companies rarely advertise for customers directly, preferring to rely on the auto dealerships to generate business for them. While this is clearly cheaper than direct advertising, it does create potential conflicts of interest between the dealership seeking to maximize price for the vehicle and the lender seeking to maximize collateral value for the loan. In this regard, the lenders interests coincide with the buyer more than the seller. The situation for the buyer is further complicated in that he or she needs to establish a trade-in value for their existing vehicle while negotiating finance and the price of a new vehicle with a seller who has greater access to information on all three. The extreme version of this is the lot which offers buy-here-pay-here financing.

Square One can gain market share by following this model. The business is not excluded from competing with existing sub-prime lenders in Billings. We will compete on price and deal structure for business and should not have any problem growing. The fact that we already have a base of customers is not lost on the dealerships. The existing business is great leverage into the market.

The existing Indications are that also believe that there is value in examining alternatives that have the potential to offer better value to the borrower.

This practice is also makes it difficult for consumers to make price comparisons from one dealership to the next. In the transaction, the seller has pricing information as well as markup power over the finance, the trade-in and the vehicle itself. Prime and near prime borrowers who have access to alternative financing or highly transparent acceptance financing are usually able to get a better deal.

Where this conflict becomes irreconcilable, the Auto Dealership itself provides buy-here-pay-here financing to customers who would not otherwise have access to vehicle finance.

Square One believes that it is feasible to gain access to the market in this way. However we believe that it is possible to increase market share by advertising directly to consumers as well. In general consumers have to negotiate for more than just a good price on a motor vehicle, the salesman for finance and trade-in over and above the price comparison for the vehicle itself. There is a wide gap and the These deals are usually structured so that the dealership is well collateralized in the event of default.