Question-and-Answer Session
Operator
Thank you. (Operator instructions). We'll go first to David Scharf, JMP Securities.
David Scharf – JMP Securities
Good morning.
Mark O'Neil
Good morning, David.
David Scharf – JMP Securities
A few things, Mark. Obviously we know about the cyclical headwinds, I like to focus more on kind of how you think the structure of your end markets are going to ultimately look once we come out of this cycle. You've mentioned something, first on the transaction side, you've made a comment that currently dealers are worried about sending sort of multiple applications, they don't want to, which I interpret to mean they don't want to be sort of viewed as being shopping around too much by a particular lender. Do you have any sense that once we emerge from this credit crisis there is more stability in both the lender and the dealer base that we're going to see the same type of profile as we saw prior to this cycle in terms of the number of applications that a dealer typically sends out or do you think there's anything structural in the industry that's going to change suggesting that the typical borrower has a lower number of normalized applications?
Mark O’Neil
Good question, David. Couple of thoughts on it. One, I do think that there is a structural change. I think fundamentally, part of the decline, and then the last year from 2008-2009 we've seen roughly a 25% decrease in the number of submissions per application, pretty unique application to lenders and look, big part of that is lenders deciding to pull back and lend only to their most profitable dealers and because virtually every dealer out there has gone through the experience of being cut off by one or more lenders they're very reluctant to engage in behavior that could cause that to happen. Now, the good news is mostly on the credit side, we see those things subsiding, but we clearly felt it through the first quarter.
The other thing to note is we've lost a number of subprime players and of the ones remaining number of those are now capital constrained in terms of how many loans they can originate. So I think those two combined factors, particularly, the latter two, would suggest that the 25% decline in behavior is not likely to return all the way. Do I think we can get 5% or 10% of that back? I think we probably can. I think most of the transaction volume increase though will come from an increase in unit sales over the next few years as opposed to an increased behavior on dealers’ shortcoming more applications.
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