This past June, 300 dealers gathered in Reno, Nevada to discuss issues relating to their Buy Here Pay Here (BHPH) business. I was surprised at first at how many new car dealers were present. After sitting through the first day general session, it became apparent to me why so many new car dealers were in attendance - they have discovered the opportunity for healthy profits in a growing market. Halfway through the second day, I'm ready to open a BHPH lot! The extraordinary exchange of information between dealers and suppliers confirmed my suspicions - BHPH is booming, but new car dealerships tend to market late model used cars in the same manner as superstores. Margins on these cars have been slipping as competition intensifies. You can certainly expect this trend to continue.
The next time you are driving down any main street, count the number of fast food joints, convenience stores, coffee and yogurt shops. Did you ever stop to think how many of the employees of these establishments could be your customers? Keep in mind that the majority of these workers make minimum wage or slightly more. Pick any one of these places and drive around back to see the types of cars being driven by these people. More likely than not, these so-called "working poor" are BHPH customers. This segment of the population continues to grow. They continue to need dependable transportation and someone is selling it to them at a handsome profit. If you wish to continue to ignore this market, read no further.
If your hesitance to deal with this market is because you do not want to deal with collections, you can go after the BHPH customer WITHOUT doing collections. Companies like Credit Acceptance Corporation (CAC) have developed very sophisticated systems to do the entire process for you including providing the capital. CAC began as a car dealership some 30 years ago and to this day is affiliated with new and used car dealerships so they understand your business. NFCAR, a division of Norwest has a separate division set up just to finance BHPH transactions and aid in the collections process. Alternatively, if you wish to collect payments yourself but need capital, companies like Finova and Cygnet can provide you the cash on a wholesale basis. Some dealers prefer to put up the cash rather than sell off the notes periodically. THE Finance Company and Western Funding are in business to purchase such notes in bulk.
Sound complicated? Make no mistake about it - this is a complicated business and going it alone would be like appraising used cars blindfolded. Advanced Dealer Systems (ADS) can provide you all the guidance you need. Rick Reeves, President of ADS, and his family have owned and operated 30 plus BHPH locations in Illinois and Arkansas. Using the successful systems they developed over many years, ADS is now a leading BHPH consulting service firm and a BHPH software provider. ADS can provide you all the systems, training and ongoing management guidance as they have for hundreds of new car dealers who own and operate BHPH operations. Their systems will tell you specifically the how and how nots of this market including what types of cars perform the best, how much to spend on reconditioning, how much weekly payment a minimum wage worker can afford, and most importantly, how to collect payments before anyone else does.
What makes BHPH hot for franchised dealers today rather over any time in the past? The current status of the sub-prime market mandates that both dealers and consumers utilize the Buy Here Pay Here model of vehicle retailing to fill the needs both sides have. Those needs will be in place for a long time to come.
The event in Reno was coordinated by the NABD (National Association of Buy Here Pay Here Dealers), under the direction of convention chairman, Ken Shilson. Shilson's CPA firm in Houston, Texas specializes in used car dealership audit, accounting, tax, and consulting services. The information shared at the convention enabled dealers to more effectively operate in the BHPH environment. The strong turnout exemplifies the serious, businesslike attraction dealers at all levels of the retail channel are showing to the Buy Here Pay Here method of operation. It is a subset of traditional retail that is certain to grow. The speakers on this year's roster gave dealers tools with which to facilitate that growth.
Take the next step right now - take a look at your current financial statement. Do you think you are making enough sales and profit in your used car department? How many cars did you wholesale last month that you think ended up at a BHPH lot? Time to get serious. If you really want to learn more about the used car business, also consider joining the National Independent Automobile Dealer Association (NIADA) and your affiliated state association. This group of almost 15,000 members concentrates their programs on selling only used cars. You never know what you might learn.
The BHPH business is estimated to be about $60 billion a year. That's BILLION with a "B". As a new car dealer, you have a distinct advantage considering that you generate the inventory needed for this business on a daily basis. Are you in?
Don DiCostanzo, is Vice President of Wynn's Warranty Division, a leading provider of warranty programs for new and used car dealerships, based in Azusa, California.