Sonic Automotive, the only dealership chain with its own captive lender, has taken itself out of the business by selling Cornerstone Acceptance Corp for $33 million.
Cornerstone was heavily involved in “buy-here, pay-here” loans. It was sold to a North Carolina-based fir, says Sonic CFO David Kosper.
Sonic had acquired Cornerstone as part of a dealership group purchase. It barred its 172 dealerships from engaging in buy-here, pay-here lending, however, and began looking for a buyer in 2006 after divesting $27 million of a Cornerstone portfolio which at one time peaked at $60 million.
“Buy here, pay here can be a great business,” says Kosper, a former CFO at Ford Credit, “but it's one we don't really need. It's too risky.”
Ken Shilson, founder of the National Alliance of Buy Here, Pay Here dealers, says Sonic is “too big” to cope with the in-house financing challenges of buy here, pay-here.
William Baldwin, a subprime loan analyst for Baldwin Anthony Securities, agrees, saying Sonic wasn't up to the challenge of handling higher default and repossession rates.
“It's the toughest part of auto financing,” says Baldwin. “But it can be highly profitable.”
Publicly owned Sonic ranks No.3 on the Ward's Megadealer 100 with 2006 revenues of $7.97 billion.
