Consumer Portfolio Services at The Gateway Conference: AI Drives Efficiency

On Wednesday, 03 September 2025, Consumer Portfolio Services (NASDAQ:CPSS) presented at The Gateway Conference 2025, offering insights into its strategic direction. The company, a leader in subprime auto finance, highlighted its record asset management, AI-driven efficiencies, and self-funded model. However, challenges remain, including rising interest expenses and a competitive landscape.

Key Takeaways

• Consumer Portfolio Services (CPS) manages $3.9 billion in assets, a company record.
• The firm has maintained profitability for 55 consecutive quarters.
• AI integration has reduced operating expenses, improving net yield by 100 basis points.
• CPS faces increased interest expenses, impacting profit margins.
• The company projects a 10% growth in originations for 2025, down from an initial 30% due to economic conditions.

Financial Results

• Asset Under Management (AUM): Achieved an all-time high of $3.9 billion.
• Portfolio Growth: Increased by 17% year-over-year.
• Profitability: 55 straight profitable quarters since 2014.
• Originations: 2024 originations reached $1.6 billion, with 2025 expected at $1.75 billion.
• Revenue: Projected to surpass $400 million in 2025, up from $363 million in 2024.
• Operating Expenses: Reduced from 6% to below 5%, enhancing net yield.
• Shareholder Equity: Exceeded $300 million, marking a new high.
• Stock Value: Trading at $7.25, half of its book value of $13.50.

Operational Updates

• ABS Market: CPS has issued 105 ABS deals over 34 years, averaging four annually.
• Self-Funding: The only self-funded company among national competitors.
• AI Integration: Expanded use in operations, reducing costs and improving collections.
• Dealer Relationships: Strong ties with 13,000 auto dealers, with a focus on large dealer groups.
• Market Share: Receives 11,000 applications daily, approving 45%.

Future Outlook

• Origination Growth: Revised to 10% for 2025 due to high interest rates and inflation.
• Profitability: Anticipates lower Fed rates to boost profitability.
• Net Loss Performance: Aiming for a 17% cumulative net loss, better than recent years.
• Strategic Focus: Emphasizes organic growth and potential acquisitions of distressed portfolios.

Q&A Highlights

• Consumer Stress: CPS adapts credit algorithms to economic conditions, tightening credit when necessary.
• Distressed Portfolios: While bidding on distressed portfolios, CPS prioritizes its own originations.
• Dealer Relationships: Utilizes AI to rank dealers and incentivize high-performing partners.
• Competitive Landscape: Differentiates through fast funding and customer service despite other financing options.

In conclusion, CPS’s strategic focus on AI and self-funding positions it well in a challenging market. For a detailed understanding, readers are encouraged to refer to the full transcript below.

Full transcript - The Gateway Conference 2025:

Alec, Host: Our next presenting company is Consumer Portfolio Services traded on NASDAQ under the ticker symbol CPSS. Consumer Portfolio Services is an independent specialty finance company that provides indirect automobile financing to individuals with past credit problems, low income or limited credit histories. CPS partners with dealerships across The US purchasing and servicing auto loans in a way that broadens access to vehicle ownership while maintaining disciplined credit and portfolio management. Here to tell you more about the company’s President and COO, Mike Lavin. Mike?

Mike Lavin, President and COO, Consumer Portfolio Services: Thanks, Alec. Thanks for being here. I’ve done these things with full houses. I’ve done it with three people in there, but this is Okay. Come by Table 39 if you have any questions after this.

But like Alex said, we are a subprime auto finance company. Something unique for CPS is we’ve been in business for thirty four years, which means we’re the longest running subprime auto finance here in the space. We’re headquartered in Las Vegas, we’ve got a thousand employees, we’ve got three or four call centers spread out across the country. One of the things that comes with being, with having longevity in the industry is that we’ve got contracts with 13,000 auto dealers across the country. 85% of those auto dealers are franchise dealers, like Mike Lavin Ford and about 15% of those are independent dealers, which is Mike Lavin’s used car on the dirt lot on the corner.

We are consistently profitable posting 55 straight profitable quarters. So going back to 2014, we’ve remained profitable through thick and thin. Our auto portfolio as it stands now, our AUM or assets under management is 3,900,000,000.0, which is an all time record in our thirty four year history. And let’s see, oh shoot, let’s do the deck. I don’t like to go with decks, but this is our first one.

So anyways, 55 straight profitable quarters, 3,900,000,000.0 under asset management. We’re growing the portfolio at a 17% clip year over year. One of the big drivers in our business is we’re a regular issuer in the asset backed security market. In fact, over the thirty four years we’ve been in business, we’ve done 105 deals, ABS deals. We do four a year on a quarterly basis.

I never really realized how many ABS deals that was. I went to the ABS West Conference in February and had a couple bankers jaws drop on the floor when I said, we’ve done 105. But yeah, we utilized the ABS market to fund our originations. One interesting thing about CBS is there’s probably six or seven competitors in the marketplace that does business on a national scale. Out of all of those competitors, we’re the only one that’s really self funded.

So we’re not owned by a private equity firm, we’re not owned by a hedge fund, insurance company, whatever. I think we’re a very attractive takeout company for the PE market right now, and I know our competitors are owned by that. What that means is we don’t have a war chest of cash to stick our hands in to fund our business going forward. So what we make, we pile drive back in the business to fuel growth. That’s a little unique in the industry.

Another thing that’s unique about CPS is the average tenure of our management team is twenty five years. In fact, the average tenure of our management team is longer than a lot of our competitors have been in business for. In fact, the management team’s been together for so long and there hasn’t really been a liquidity event. We’ve ended up owning about 48% of the total outstanding shares of CPS, which is somewhat unique because now you have an executive management team that’s been together for a long, long time and we all have skin in the game. So I go to work every day with an adrenaline rush to push things forward cause I’ve got a ton of skin in the game at this company and I’ve been there for twenty four years.

One of the advantages that we have is our technology advantage. We’ve been kind of a fintech for the last decade. So before the FinTech name went viral, we’re sort of an originator of the FinTech stuff. And really when you look at subprime auto, it all boils down to your credit algorithm. Can you evaluate a credit bureau?

Can you evaluate the customer? Can you risk based price that customer within a matter of seconds? And being in business for so long, we’ve had access to customer data for thirty four years and we’ve accessed that data through SaaS software and machine learning to drive what we think is the best credit algorithm in the industry. We update that algorithm about every 18 with fresh data and that’s allowing us to buy more reliable loans. We’ve expanded our use of AI into the front end of our business, where the artificial intelligence is reading the dealer packages and pre populating our proprietary loan origination system.

We’ve also incorporated AI agents into CPS as of three months ago. I’m only aware of three of our competitors using AI agents in our business. One of the big underwriting tools we have is what’s called a welcome call, and that’s where we call the customer and verify the you got a Camry, it’s great, it has 50,000 miles on it, etcetera, etcetera. Well, now we have the AI do those welcome calls. Not only is it more accurate, it’s quicker, and we’re bypassing the processors.

On the collection side of the business, we have AI basically going into the customer behaviors of how they pay their bills. And so every day that a collector comes in and logs on to our proprietary system, the AI tells the agent who to call, when to call, and how to call them. So basically, they’re logging in, they’re saying, I’m going to collect Luke’s account, and the AI says, or the customer behavior says, call them after 03:00 at work. Don’t text them after 07:00 because they’ll never answer. So we’ve got the AI dialing into the customer behaviors for each of our 250,000 active accounts.

And like I said, the other thing that we’ve done is we put in the AI agents two months ago, and we’re letting them do outbound calls on an auto dialer. And those are we’re only letting them collect on our easy accounts. And what that’s allowed us to do is take some some of the better domestic collectors that we have and put them on the harder accounts. So for example, I was reading some data and last month because we had the AI bots going, we were that we were actually able to go from 5,000 manual texts to 15,000 manual texts by our collectors because now they don’t have to do the outbound calls on the dialer. So it’s allowing us to stack our collection activities day after day.

The total addressable market in auto finance is huge. It’s 1,600,000,000,000.0 as of the end of the first quarter according to Experian. Subprime is 16% of that 1,600,000,000,000.0, and like I said, not a very competitive industry. There’s only six to seven competitors. There’s enough business to go around.

In fact, we’re getting 11,000 applications per day and our approval rate is only 45%. So, we’re kind of cherry picking the best sub prime customers in the market and guess what, our competitors are cherry picking as well, because there’s enough business for everyone. So, in this business, there’s more demand than there is supply of the financing product. And so that’s quite unique for the business. The other thing that’s unique is there’s a high barrier to entry and there’s a couple reasons.

One is it’s highly regulated, so if you’re going to go into this business as a startup you better come in with an army of lawyers. Number two, it’s very capital intensive. So, we’re setting origination records year over year, but we’re self funded. So, we’re kind of on the edge liquidity wise quarter over quarter. Most start ups can’t handle that.

And, the third which is probably the biggest barrier to entry is like I said, have those dealer contracts with 13,000 dealers. It takes years and years and years to get those relationships in the auto business. The auto business is still sort of relationship based. Believe it or not, it’s kind of an old school business. And so, a startup to come in and disrupt the industry and think that they can get even a thousand relationships going with dealers, even within two years is impossible.

I’ve been asked a few times to spin off and do a couple startups myself and I just refuse to do it. It’s just an impossible task. And I don’t remember the last time I saw a startup in our space. So, that’s pretty good. Our customer is surprisingly good.

The difference in our algorithm is that we look we we kind of look for the sub prime customer that has a lower FICO, like sort of five sixty five to five eighty, that is in the moment a subprime customer, but really truly over the long haul isn’t a subprime customer. So maybe they went through a divorce, maybe they’ve got some medical bills with something that happened over the last six months, maybe who knows, maybe they’ve got some one time student loans, whatever. Our model tells us that they’re actually a near prime customer or prime customer, but we’re going to price them as a subprime customer. So, they’re making I think what is it $73,000.75000 dollars 23% own homes, 41 years old, five years average job time, that’s a pretty solid customer. So, are certainly other companies out there that aren’t in our space that are going deep, deep, deep subprime and that’s not where we live.

We’re going to skip that one. Turning to sort of our origination trends, coming out of COVID we never ever in our thirty four year history did an originations month or a year over $1,000,000,000 but in fact coming out of COVID we’ve gone over $1,000,000,000 every year. We came out in 2022 and did 1,850,000,000.00, in 2023 we kind of tightened credit a little bit, 2022 is a bit of a tough year with macroeconomic headwinds, but we still did $1,350,000,000 which was still our second best year in our history. We ramped it back up to $1,600,000,000 last year and this year we’re sort of tracking for a 10% -ish growth rate. We’re supposed to do about 30% this year, We’ve kind of dialed it back because interest rates are so high, inflation is high.

I think there’s some strains on the customer. So we’re kind of taking it easy, but we’ll still have a 10% growth year over year, roughly 1,750,000,000.00 this year. So we’re definitely sort of went from sort of a turtle in the industry to more of a hair coming out of COVID, more of a sort of a semi growth company instead of a long term value company. And with that growth has come increase in revenues. As you can see, we’ve sort of gone from two sixty six million dollars in 2021 up to $363,000,000 last year.

And this year we’re tracking to go over $400,000,000 in the first year, the first time in our company history. Now with that being said, we have seen our profits shrink a little bit quarter over quarter and year over year and that’s strictly due to the interest expense that we’re experiencing in the marketplace. Remember, we lend money at 20% and we borrow money at say 6%. And after keeping the lights on and accounting for our losses, the difference is our net yield. And so right now, historically we’re borrowing money at 3% to 4% in our ABS transactions, but lately at least in the last year it’s been between 86%, and so our net yield has naturally gone down.

So, the profits taken a little bit of a hit, But one thing we have been able to do with the AI that I talked about and what we’ve learned over the years and coming out of COVID is we’ve been able to drive our operating expenses down, which is big for us and big for our bottom line and our net yield. In the past year, we’ve driven our OpEx down from 6% to below 5%, which is again the first time in our we’re setting company records. For the first time in our history, we got it under 5% and that’s been able to allow us to increase our net yield by a 100 basis points. So, the AI is very much helping there, I guess it’s just a sign of the times, Lots of companies OpEx is going down because if they’re using AI and that’s no different for us. So, looking at our net interest margin which at least our investors care about and we care about deeply.

The golden number that at least I’ve been told in the industry is 3% to 4% net yield at the end of the day. We kind of struggle a little bit in 2024 with a 1.2% net yield and you can see one of the reasons is the cost of funds was above six, which is historically high. And you can also see that our OpEx was 5.6 and our losses were a little high as well. But coming into this year, at least for halfway through the year, we’re still holding our APR at 20%. We’ve been able to lower our OpEx and our portfolio is performing better, so we’re lowering our losses.

We do expect to get over 3% by the end of the year, which will make 2025 a pretty good year. I also talked about what we’ve learned in those thirty four years. We’ve learned to do more with less. And the orange line marks what does the orange line mark? The orange line marks our total managed portfolio, and the blue bars mark our total employee headcount.

So you can see as the orange, as we’re growing the portfolio, we’re not really growing the blue bars. So, this along with AI is allowing us to lower our OpEx. So, historically we were okay at OpEx, but you can see we’ve really turned the corner in the last few years. Sort of going to some of our financials, the balance sheet, the balance sheet is looking pretty good these days. A couple of things of note, our shareholder equity just reached over 300,000,000, is the first time again, the first time in our history we’ve gotten over 300,000,000, that’s the highest shareholder value that we’ve ever gotten.

You can see that our restricted cash is pretty high, so we’re sitting on a decent amount of cash. The warehouse lines of credit are a little bit lower, but you can also see that our well, that’s not here but you can also see that our interest expense has gone up by quite a bit and that’s what’s sort of hurting our profitability. And then, sort of looking at our ABS transactions and what I call the credit enhancement, what I really call the hidden asset of the company is our credit enhancement which is a fancy way of saying it’s our residual. So, with every ABS deal, we get an equity piece of those collections. And so, after we pay each investor back their principal and interest, whatever’s left comes to us.

And so, when we when we add and it takes about it takes about six to seven years for those residuals to pay out over time and when you and when you we have we have around 16 outstanding ABS transactions and we add all those up, we’re sitting on 400,000,000 in cash at the end of the day. And when you think about it, it really is a hidden asset and I tell my wife all the time when she freaks out when the company is not doing good, like, hold on. We’re sitting on 400,000,000 in cash and if we stopped originating tomorrow and we ran the portfolio off, we’d be sit we would literally run off 400,000,000 and when you think about the shares outstanding that’s roughly about $16 a share, $17 a share in liquidity value. Considering the fact that our book value is $13.50 right now and considering the fact that our stock is completely crashed the last week and we’re trading for, I don’t even know, $77 and 25¢ as of twenty minutes ago and I’m not looking at my account right now because we’ve we’ve got hammered the last week. But but we’re trading for half of book and we’re sitting on a $400,000,000 asset.

There’s a lot of upside in CPS. Sort of sort of some final thoughts. You know, we’re in a good spot as a company. We’re very well capitalized, our shareholder equity is at an all time high, our originations are at an all time high, our revenues are growing at an all time high, once we get rid of the interest expense, we’re sort of relying on the Fed rates to go down, if we can get back to that 3% to 4% borrowing costs, we’ll get the interest expense down and the profitability up. And we’ve also driven down our OpEx, we’re really in a good spot going forward.

Now, of course, I don’t control the public markets, I control the message. We are thinly traded, which is an issue. We have a small float and we’re trying to get over those hurdles going forward. So with that, any questions from the massive audience?

Alec, Host: SPEAKER Yeah.

Unidentified speaker, Attendee: SPEAKER So if we still get Sorry. I’m just curious. I mean, I think there’s debate as to where the consumer is today. But let’s just assume that they’re under stress and increasing stress, particularly in the sort of subprime end of things. So given your longevity, how does that play out for you business wise?

One. And then two, is there have you ever taken advantage of larger pools of loans that might become available under that scenario?

Mike Lavin, President and COO, Consumer Portfolio Services: Yes. So, to answer your first question, we kind of rely on our experience to pull back our credit when we see the macro headwinds. So, we’ve been through I think three or four cycles in our thirty four years and so we know when to pull back and we know when to go forward. So, coming out of 2022 we pulled back from 1,800,000,000.0 to 1,300,000,000.0. So, basically tightened our credit.

We go into the credit algorithm and we say instead of three months in a job, you got to be in a job for nine months. And instead of being in your current residence for six months, you got to be in your residence for a year. So, we make all those kinds of changes and that brings our originations down 500,000,000. Now, this year, I agree with you, the customer is constrained and under pressure. And so, what we’ve done is, we were supposed to grow 30 to 40% this year.

We were going to crack 2,000,000,000 for the first time ever, but we’ve paired it way back and we’re only looking at, like I said, a 5% to 10% growth year over year. So, we do lean on the experience to pull back. That’s the lever that we have is that algorithm. And, it’s as easy as me walking across the building into the senior VP of risk and say, Hey, man. We’ve to pull back, come up with five things.

And then we can run scenarios in our software to figure out how that’s going to tighten it up. And then, other question is, yeah, I mean, I mean, there’s not a lot of players out there in the space, so portfolios of distressed like a distressed portfolio doesn’t come available very often. But when it does, sometimes we are a bidder. Sometimes big banks like Fortress and Ares, who we have relationships with will say, okay, we want to buy the portfolio, we need you to service it and we’ll give you an equity piece. We do bid on portfolios with that kind of structure, we can’t afford to buy those portfolios ourselves.

In fact, if we could, we wouldn’t do it, we would pile drive it into our own originations because we want to rely on our proprietary algorithm and not something that’s sort of distressed. But we do, we’ve done, we’ve probably, I think we’ve bought four portfolios in our history, but we haven’t bought one in over a decade. So that’s kind of where we’re at.

Alec, Host: Mike, maybe to double click on a topic that you covered well, your dealer relationships, kind of give us the obviously thirty plus years of operating history, where do you see advantages in more of a consolidated market? What feedback have they had recently as kind of a broad topic on how you’re managing retention with the dealers? And yeah, I guess we’ll just start there.

Mike Lavin, President and COO, Consumer Portfolio Services: Yeah, mean we have 13,000 dealers but realistically 8,000 of those 13,000 send us applications on any given month and out of those 8,000 we’re really only funding with 2,000 and we can get into the data and figure out who our best dealers are and when we combined who’s giving us the volume and then we track the portfolio of business that they’re giving us in terms of losses, we hone in on those better dealers. In fact, we have a proprietary AI product that rates the dealers A, B, C and D with A dealers getting incentives like management fees or instead of five stipulations, give us five documents, we’ll say just give us the proof of income, all the way down to the D where they have to give us everything and anything to get the loan done. So we’re kind of relying on sort of our ranking system and our AI to hone in our marketing efforts. I don’t know if that addresses your question. And then the other thing that we’ve been doing at least for the last three years is we put an emphasis on large dealer groups.

And a large dealer group is any auto dealership with more than 10 dealerships under their umbrella. We’ve really attacked those dealerships across the country. And we’ve actually raised the percentage of our originations from 16% large dealer groups to 29%. And so, we think that that’s a good sort of sweet spot to be in. You don’t want have all your eggs in one basket with large dealer groups because they do get management fees, but on the other hand that was a good source of organic business for us as well, instead of having to hire 10 marketing reps, we just have one rep go to three large dealer groups and we’re getting more deals from that one dealer than opening up three territories.

So, it’s worked out well. Yes sir.

Unidentified speaker, Attendee: So, back on the last question I asked, so what has been the range of your net loss percentage in troubled times, one and then two, with the, I think you said 2,000, we’ll call them active monthly dealers that you’re doing business with. Do they typically have you as a sole source? Or if you don’t pick up the financing they’ve got Joe and Mike and whomever else as a third and fourth financing option?

Mike Lavin, President and COO, Consumer Portfolio Services: Yeah. So our cumulative net losses are historically around 15%. During 2022 and 2023 vintages, they went up to about 21%. Right now, we think are originating towards a 17% CNL, So, we’re still a little bit above historicals. I don’t even know if we’ll ever get back down to 14 or 15, but we’re certainly not at 20 or 21, which we were a few years ago.

And generally speaking, I have access to all the data of our competitors and how they’re performing. We’re all kind of about in the same boat, although I will tell you we do beat them on net loss performance and that’s only because we’re stricter. If we wanted to get an $8,000,000,000 portfolio, we could probably do it in two years if we felt like it, but we’re not willing to have a 25 net loss, we’re just not that big enough. And then the answer to your other question is, yeah, I mean if they don’t get financing from us, there are three or four others that are willing to do it. Now, they is their APR going to be the same, is their fee going to be the same, is the term of the loan going to be the same, I’m not sure, probably they’re probably different because everybody has their own secret sauce algorithm, so everybody prices it different.

And, it’s up to the dealer to pick, they’ll pick the lender based on how much profit they can get at the time the transaction closes. That’s it. That’s all they care about. Sometimes, relationships can come into play, but rarely. They’re really just going for a dealer profitability.

And at the end of the day, the only thing that could trump that is, we fund within two days, but some of our competitors take two weeks, and that’s tough on their floor plan landing and their cash flow. So sometimes we can get away with a bigger fee in an APR because we fund so fast. So there are some advantages there too.

Unidentified speaker, Attendee: Yeah. I mean, think it would just be a trade up in origination velocity. And I mean, I presume we’re not talking about huge differences in profitability upon who what lender you’re dealing with. Right? I mean

Mike Lavin, President and COO, Consumer Portfolio Services: Hundreds of dollars. Yeah. Right. So

Unidentified speaker, Attendee: you just wanna just wanna create more transactions as opposed to worrying about $100 on a particular transaction.

Mike Lavin, President and COO, Consumer Portfolio Services: Yeah. Right. And that’s why that’s why we can survive because we’re not the best priced. We’re not the best term, but we fund the fastest and we have great customer service and we’re always the path of least resistance and that’s what they like.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.