Back when I first started desking deals, the “seasoned” salespeople would tell me, “Let’s do this deal; we’ll make up the gross on the next one. It’s easier to get iron than customers.” I believe there was a change in that attitude in 2008. Four years later, Buy-Here-Pay-Here (BHPH) dealers are still facing the challenge of finding enough choice inventory for their business model while maintaining portfolio performance.
In my last BHPH operation we operated a little different than most. We operated a business model where we would attract our customers away from the big retail store and not just our note lot competition down the street. The program we offered helped with that. We offered a lower interest rate, extended service plans, GAP, sales tax help and we reported to the bureaus. These were excellent talking points and customers cited them as primary reasons to do business with us. The real draw that attracted the customers we wanted were the vehicles out front.
In a BHPH or LHPH operation it is critical to watch your underwriting and collections every day. Your inventory is almost as important. What we could buy for the money four years ago is not the case today. Even with recent market improvements, there are fewer rigs to pick from with twice as many people needing to buy them. The vehicles making it into the wholesale market have been less desirable because the huge drop in retail sales 3-4 years ago has fewer trades available today and the franchise dealers are holding onto their trades, while some are keeping their used inventory on the books longer.
In my previous operation, we always limited our cost of vehicle to $8,500. This allowed our portfolio to maintain loan terms at 156 weeks. We chose a complete reconditioning program to make sure the vehicles we sold would stay rolling as long as possible. After 2008 our ACV didn’t change, but what we put on the lot did. Recently, the market has seen lending start to loosen with special financing coming back to life and new car sales improving. This will help the supply of trades as we continue through 2013.
As owners and managers in BHPH, you have many responsibilities in the day-to-day operations of your stores. Your inventory is one of the most critical components of your business model. It plays a key role in profits and losses. The vehicles out front are a major part of your advertising and attract the customers who are shopping on your lot. Inventory is critical in the success of your BHPH portfolio, not only in the collection performance, but also in your loss ratios when you get the vehicles back or (depending on your business model) your experience with damage claims.
Finding a good balance between affordability, portfolio success, loss ratios and desire from customers has always been a challenge. That challenge increased the last four years and, hopefully, those experiences toughened us up and will help keep everyone sharp as changes continue into next year.