Technology and Your Buy-Here-Pay-Here Operation
By Steele Gudal
Most buy-here-pay-here dealers have computer hardware and software designed to monitor and service their loans. Most also automate their accounting. However, those are usually two separate systems which do not "talk" to each other, and that is where the use of technology usually stops in this business. A complete, state-of-the-art operating system can integrate all of the functional areas of the dealership and provide valuable managerial reports. It can help coordinate the entire process from vehicle purchase and reconditioning, to inventory tracking, to loan approval and origination, to service department management, to collection monitoring.
Without the means to quickly get a complete and accurate picture of the operation, the owner is operating at a disadvantage. Remember that in this business, the mistakes made today may not become apparent for months or maybe years. Effective oversight and monitoring allows for the correction of those mistakes before they show up on the bottom line.
That is just the most visible impact of technology. What matters more than the operating system you choose is how you utilize the information you capture throughout the process. That is how you truly leverage your investment in technology. One example is the use of static pool analysis. Static pool analysis is simply tracking the performance of a small pool of loans (say those originated in a particular month) throughout their entire life. If a portfolio is growing fast enough, you can easily have a situation where loan charge-offs are increasing while the percentage of the total portfolio charged off is decreasing. If the owner is simply looking at the charge-off as a percentage of the entire portfolio he will think that he is doing very well, while in reality his is digging a hole he will not be able to get out of. Without static pool analysis he can not tell. With it, he can make the proper adjustments before it is too late.
Lets take this example a step further. A dealer performs his static pool analysis and it shows him that the most active time for loan charge-offs is the first twelve months after origination. He also knows that the most common reason a loan charges off is because the vehicle stops performing. It might make sense to sell a better car and offer a warranty to keep the vehicle running and the customer paying. Take another step and imagine the impact if a dealer is able to determine which of the vehicles he sold performed the best with the least amount of reconditioning and warranty work. He can then focus on the more profitable vehicles and eliminate the losers. Those are the types of decisions that technology makes possible.
This is not a new approach, but it is new to this industry. This is because the average buy-here-pay-here dealer has been undercapitalized and the business has not been run on a large enough scale to have that type of investment make sense. However, it is becoming more apparent that the technology investment should be viewed from a profit perspective rather than a cost perspective. In this new information age, the dealer who is best able to capture and capitalize on information will win.
Steele Gudal is the President and COO of J.D. Byrider Franchising, a chain of 95 buy-here-pay-here dealerships. sgudal@dealeronline.com
