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Brent Carmichael

Your Buy Here Pay Here Collection CSI

Cars

How would your collection department Customer Service Index/Indicator (CSI) measure up to everyone in the BHPH industry? Most BHPH operators haven’t given it a second thought. As of yet, there hasn’t been a national BHPH CSI developed, but it’s something that must be tracked and monitored to have any hope of future success.

In today’s highly competitive BHPH marketplace, a low CSI will not only cost you money, but could literally cost you your entire business. Obviously, customer service and satisfaction is important in all facets of the business; from sales to service to collections. But in the recent economic and competitive climate, how the customer is treated during the collection process will set you up for either future success of failure.

The BHPH business is widely recognized, and rightly so, as a collection or risk management business. Yet often times the service after the sale, so to speak, is neglected or simply ignored. The most successful operators thrive on repeat and referral business ‒ a direct result of providing good overall customer service. And those same operators usually experience a better performing portfolio, which, again, is what this business is all about.

One of the biggest challenges to providing effective collection customer service comes from the top. Some operators still cling to an old school train of thought: They have already provided service by selling and financing a vehicle for a customer when more than one other dealer said no. Another car in that same train carries the thought that the customer has signed a contract and that’s where the obligation ends. These thought processes are filtered down and can affect the attitude of everyone in the organization towards their greatest asset, the customer. I’m not saying the customer is always right, but they are becoming more right everyday.

Another sizable challenge to providing good collection customer service is setting the right tone. The first collection customer contact usually occurs when a payment is missed or there is a service issue. Neither of which is particularly positive from the customer’s viewpoint. Too often it is assumed that the customer is either lying in regards to their circumstances or simply trying to get something for nothing. Both of which lead to an overly-aggressive posture in trying to exert some form of control over the customer, usually by bullying or giving ultimatums. This rarely works effectively in the long run.

The key to setting the right tone is getting customers to first like you. If they like you, they will trust you. And if they trust you, they will respect you. Once they respect you, they will be much more likely to accept whatever you have to say, good, bad or indifferent. It all begins with listening. We were given two ears and one mouth for a reason. We should listen twice as much as we speak. The like-trust-respect dynamic is instrumental in setting the right tone. Set the wrong tone and it will be an arduous collection task for the length of the note. But rest assured: if you set the wrong tone, you will not have to worry about your customers, or anyone they know, once their notes are paid off.

There are many ways to develop and foster customer service and satisfaction. Customer rewards programs have proven successful in other industries and are now picking up steam in BHPH. Most everyone has a repeat and referral program, but collection and service reward programs are becoming more prevalent. I can hear those of you on the old school train; “Reward them for doing what they are supposed to do anyway? Never!” In today’s ultra-competitive BHPH market, that may be just what it will take to thrive ‒ anything to separate you from the competition, provide added value to the customer, and keep them paying you. Whether it is the customer receiving credit for making their payments on time, or incentives for keeping up with the regular maintenance of the vehicle, the key is having something in place.

Deciding to renew or extend your commitment to customer service and satisfaction is a step in the right direction. The next step is how to effectively track and monitor progress, or lack thereof. There are a few ways to do this: Written surveys and call recording systems seem to be the most popular and effective.

Written surveys should be simple and concise. Multiple choice and/or number grading are the easiest to track and quantify. Open response surveys can provide a lot of information, but they are often illegible and consequently, not of much value. Surveys can be done at the time of sale, as the customer pays off, or at the time any service is performed, whether it be warranty, customer pay, or best of all, good will. It’s a good practice to include your employees in the survey process; if the right tone was set, who better to know what the customer’s likes and dislikes are? Regardless of whom it’s from or when, all feedback can be valuable.

Call recording systems are also valuable in tracking and monitoring how well your organization is handling your customers. One bit of advice: Remove all sharp objects and anything that can be thrown or broken prior to listening to the first set of recordings. You will be astonished at what and how things are being said to your potential and existing customers by your employees. Once you get past the initial shock, call recordings will provide a great avenue for training and holding your remaining staff accountable. They can also provide a means of verification in a “we said/they said” scenario, thus preventing a possible legal nightmare.

Competition for the BHPH customer is stiffer than ever, especially with how aggressive sub-prime has been for quite some time. Add to that rising compliance standards, and customer service and satisfaction is more important now than ever. The like-trust-respect dynamic will be the key to not only sales success, but more importantly, collection success. Today’s BHPH customer only wants what we all want: to be treated with courtesy and respect. The truly successful operators already understand this and act accordingly. This simple fact, if ignored, will derail the old school train.

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Brent Carmichael Speaking Sessions at NABD 2014:

  • Compliance Expectations from the Capital Markets- Sunday 4:45-5:45 PM
  • Compliance Best Practices Panel – Monday 4:00-5:00 PM
  • Tax Refunds & Increasing Ups – Tuesday 4:00-4:45 PM
  • Benchmarks, Trends Update – Wednesday 5:00-5:45 PM
  • Operators’ Best Practices – Thursday 11:00 AM-12:15 PM

Additionally, you’ll be able to meet with Brent to discuss 20 Groups, education and consulting opportunities at the Dealer Academy between sessions in the Exhibitor Ballroom in booth 1111.

Permanent link to this article: http://blog.ncm20.com/2014/04/your-buy-here-pay-here-collection-csi/

Brent Carmichael

Now Showing: Clash of the BHPH Titans

I just had the pleasure and honor of attending and participating in Innovate 2013. It is Autostar Solutions’ annual user conference. Once a year, they invite their dealer clients down to Ft. Worth for 2 ½ days of one-on-one training sessions on all facets of their software, as well as to learn from industry-specific speakers and panel discussions.

This was my second year to be a part of the conference and I don’t understand why no other software provider does the same. It is a phenomenal opportunity for the attendees to deep dive into the use of the system and educate themselves on current industry trends.

During this year’s conference I had the honor of being the keynote speaker on one of the days and also to be a part of a debate on current issues facing BHPH dealers. The debate was moderated by Allen Dobbins, president of AutoStar, and pitted Chuck Bonnano from Leedom and Associates against myself. We each took opposing views on various topical issues. It was scheduled for an hour and it lasted over an hour and a half.

Throughout the debate, Chuck and I took questions from the attendees and also from the moderator. It was a very interactive session that everyone in attendance seemed to enjoy and get a lot out of. It is the first time I had not only seen, but participated in that type of format.  I truly feel it was more beneficial to those in attendance than your typical panel discussion or Q&A session.

Dealers looking for resources to help them improve their BHPH operations are often confused by what makes one service better than another. They try to filter through the messaging and recommendations, but even then it’s difficult to make a truly educated decision. AutoStar gave their dealers a way to cut through the noise and hear it straight from the mouths of the service providers themselves. And best yet, they took video of the exchange and have made it available to the masses.

The Great Debate: Leedom versus NCM” is entertaining and enlightening, but if you are looking for some help with your BHPH operation and can’t make a decision based upon this, ask your peers about their experiences. Or, drop me an email at bcarmichael@ncm20.com or call 800.756.2620; I’d love to talk with you personally about your operation and how we can work together to achieve your goals.

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Permanent link to this article: http://blog.ncm20.com/2013/10/now-showing-clash-of-the-bhph-titans/

Gene Daughtry

Where Have All The BHPH Customers Gone?

binocI ask a different question. Where did all the customers come from that are buying right now? Have all these customers been waiting for financing to come back to life? Did they all just hang on to the same car for five, six or even ten years? I hope this year helped you realize that there have been many customers in your market who could have used your help, but they would never consider buying a car from you because of their perception of what you do.

There was a long list of decisions to make when you decided to get into BHPH:  What business model; what inventory; your tolerance for risk; how you would collect; shop or no shop; a one-man show or full crew? These decisions were all part of what your motor company would eventually look like. Now comes a new challenge – Special Financing. Special Finance isn’t really new, though. I have been through at least three surges in Special Finance.

Customers wait because they want something “better,” something different than they believe they can get from you. What is the Special Finance dealer offering that you are not? New vehicles with six-year loans or other vehicles you do not offer? Do they have longer warranties or lower interest rates? You should know. You need to know.

Since my start in the car business I have been involved in three unique BHPH operations. One operation financed cars that had low ACVs and fit into what most people perceive a “note lot” looks like. Things like operating out of a single wide trailer on a partially-paved lot while offering little recon and even less service after the sale. From there I moved to an established High Line operation that operated in a very nice facility.  In the late 90s we offered vehicles above the $10,000 ACV range with long term service contracts, GAP and Credit Life. We had a profitable, full-service shop operation. With four-year loans and inventory choices like Cadillac, Lexus, Infiniti, BMW and Mercedes. We had doctors, lawyers, airline pilots and even a federal judge in our portfolio. Bad credit occurs at all levels. I learned quite a bit from both these operations and the original people that set them up, which lead me to the third operation.

This was a startup I handled eight years ago for a franchise dealer and using my own business model.  My goal was to attract the Special Finance customers in that market. I wanted an operation that provided greater service and a better opportunity to our customers than the Special Finance dealers and their lenders could offer. I decided on a business model with an ACV in a $6,000 to $9,000 (average $7,200) range with full recon, including new tires. My experience from the High Line operation confirmed offering a long-term, quality service contract while having side loans available for maintenance and other repairs would have a positive effect on our marketing and portfolio. We offered them along with GAP to each customer. To keep payments affordable, we offered a 36-month term, which helped make early trading easier.

What do your customers want besides a great looking, brand new car that never breaks down, burns gas or has payments? They want the closest thing they can get to that with no money down! Our program advertised flexible down payments; we worked with what the customer had available using a deferred down program. We had a set interest rate for all approved customers of 7.5%. We reported all loans to the credit bureau. All this, and we had a very interesting mix of inventory the customers only saw on our lot. Our program, combined with friendly and helpful customer service (including collections), allowed us to generate above 75% repeat and referral business over the last eight-year period.

You can wait for the latest Special Financing boom to subside and go on doing what you always have, or you can make some changes that will help keep your existing customers and possibly attract a different type of client to buy from you.

Ask yourself and others what you do (or don’t do) that drives customers to the Special Finance dealer down the street. What are your prospects seeing or hearing that makes them stop at your competitors before coming to you? Is it a great website? Is it the inventory? Is it the way they are advertising? Or is it something your operation does or doesn’t do that your customers talk about? Does what you sell, the interest rate, lack of warranty or how you handle collections stop customers in your market from even considering your operation when they need a vehicle? Why not start now to change that perception? Figure out what the customers in your market want from their car dealer, whatever that may be, and let folks know you can provide it.

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Permanent link to this article: http://blog.ncm20.com/2013/10/where-have-all-the-bhph-customers-gone/

Dale Pollak

Dissecting the Two Different Types of Used Vehicle Retailers

used carsIn my conversations and travels, I encounter two different types of dealers.

The first group often struggles with aged units in their used vehicle inventories, persistent wholesale losses and an as-yet unfulfilled desire to increase their sales volumes and overall profitability.

The second group has what I might describe as “higher-order” issues: To be sure, they encounter occasional aged units and wholesale losses, but these aren’t persistent problems. Their biggest challenges relate to fine-tuning and managing processes to help them increase efficiencies, lower costs and maintain improved sales volumes.

In the past several months, I’ve been trying to better understand this disparity: What, exactly, separates these two groups of dealers? Why does one group seem bogged down with aged cars and wholesale losses, while the other appears to have largely found a way to avoid these problems?

I think I’ve found the simplest answer to these questions. The difference between the two groups of dealers boils down to a willingness to own up to mistakes, address them and move on. Put another way, one group of dealers is more willing to take a loss on a used vehicle, while the other resists a potential loss at every turn.

This realization hit home the other day after two distinctly different dealer conversations.

In the first discussion, I was talking to a Midwest dealer with nearly a quarter of his 150-car inventory at or beyond 90 days of age. He’d stocked up this past spring and was trying to “retail out of the problem.” We looked closer and saw that he hadn’t made the pricing adjustments that appeared necessary to actually sell the cars. Why? Because he’d take a loss. Likewise, he didn’t want to wholesale them because “I’d lose my shirt at the auction.”

The second conversation with a Florida dealer revealed a different problem. He wanted my guidance on ways to find more cars more quickly to feed his inventory. He’s got an aggressive 25-day retail window, and turns his 120-car inventory more than 15 times a year. We discussed ways he could expand his reach at auctions and tighten up his trade-in appraisal efforts.

Then I asked how he felt about taking a loss on a vehicle. “I view every loss as two opportunities,” he said. “First, it’s a chance to re-invest my money in a car with a better profit upside. Second, it’s an opportunity for us to figure out what we missed.”

Wow, I thought. This dealer’s definitely a “new school” used vehicle retailer. Unlike his more tradition-minded peers, he’s evolved beyond holding onto cars and hoping for a profit-positive deal. He recognizes losses for what they are — a failure in his team’s efforts to acquire, recondition, price and merchandise a used vehicle, and an opportunity to make his next used vehicle investment decision even better.

Both conversations crystallized my conclusion about the difference between the two types of dealers.

I asked the Florida dealer for three tips to help other dealers adopt some of his “new school” used vehicle management thinking. Here they are:

  1. Recognize the time-sensitive nature of your investment. This dealer’s decision to retail every used vehicle in 25 days is no accident. Previously, his retailing timeline ran 90 days, then 60 days and then 45 days. The dealer settled on 25 days to essentially retail fresh cars all the time. My recommendation for most dealers is a 45-day horizon to retail used vehicles. The dealer’s more aggressive because he believes the shorter window minimizes his exposure to market risks — the mark of a retailer who understands the fast-changing nature of today’s market.
  2. Apply a disciplined, “retail-first” strategy. The dealer doesn’t wholesale too many vehicles, given the store’s “retail-first” strategy. This approach requires disciplined pricing decisions that balance each car’s potential for gross profit against its shelf life as a retail unit. The dealer’s team monitors each vehicle’s online performance against the market of competing cars to calibrate pricing.
  3. Adopt a “total gross” mindset. Part of the reason the Florida dealer is willing to take an occasional loss is that he understands he’s already made money on the unit through reconditioning, and he believes the next car will deliver a greater amount of both back-end and front-end gross profit. Like many velocity dealers, his focus on “total gross” followed years of using “average front-end gross” as his chief management benchmark. “Front-end gross doesn’t give you the whole picture of each car’s value as an investment,” the dealer says. “Total gross is better barometer.”

I shared the Florida dealer’s tips with the Midwest dealer. His comment: “I’m glad that guy’s not in my market. He’d be eating my lunch.”

UV Training

Permanent link to this article: http://blog.ncm20.com/2013/09/dissecting-the-two-different-types-of-used-vehicle-retailers/

Gene Daughtry

Controlling Delinquency in Buy Here, Pay Here

Man in debt(2)Underwriting is the first and most important way to control delinquency. In the NCM Institute’s BHPH training programs, “BHPH Underwriting and Collections Management” and “A Culture of Collections,” we discuss underwriting and collections best practices in detail, but the first line of defense against out-of-control delinquencies is to determine the amount of risk you want to endure and design your underwriting to fit that business model. You should sell vehicles that are in a price range aligned with your risk model, so that your losses are tolerable and the customers you are selling to are happy to pay for the vehicle after they purchase it. In my operations we used a strong closing with visual aids to help the customer remember what they agreed to.

From the moment our sales people “upped” a customer, they were working to assist in collections. Our sales people knew there job was to gather information. We trained everyone about the process of underwriting and how it affected the collector long after the car left the lot. One step in our process was after the underwriter approved the customer, our sales people would use a handwritten document to write up trade figures, pickup payments, regular payments and payment dates (always paydays). The handwritten page was signed by the customer and kept on file. Later, if disagreements ensued during collection efforts, having that handwritten page usually ended the argument quickly. Most of the time when a customer disagreed with collector activity it was not about your actions as a dealer. It is usually about their job/family situation or ill-advised spending when they should be paying their bills first.

Another important way to control delinquency is to make sure your collector is being diligent and organized. If a customer cannot pay the full payment due, your collector needs to receive a payment agreement from the customer when they call or come in. Whatever that agreement, your collector must follow up and attempt to make the customer adhere to it. Being flexible is important when dealing with people. Flexible is agreeing to change payment dates when paydays change, helping customers who have fallen behind by waiving late fees, or deferring payments for them if they prove the reason given.  Both sides should follow an agreement put together between customer and collector.

Remembering that you are dealing with human beings is important. Establishing LTR (Like, Trust, Respect) with the “regular contacts” should be a goal of your collectors. I worked with our collection and cashiering staff to make sure they were friendly and understanding (within limits) so customers wouldn’t avoid calling for fear of explaining an issue to an unsympathetic ear. Being flexible is important, but customers are people and you should listen with a dose of skepticism. My collectors asked customers to bring proof of whatever story they are telling (doctor bill, check stub, garnishment notice, funeral program) in exchange for our forgiving a late charge or deferring a payment.

In our operation, I would be the only person who could physically make account changes. That way, I was involved in the decision and the collectors kept me in the back of their minds when talking to someone about an account. If the customer broke two agreements, we picked up the vehicle in an attempt to show the customer we were serious. In many cases, if the car was redeemed, the payments on the repo would be paid more consistently in the future. Do not allow your customers to think you are the easiest of their payments to miss while they pay other bills or buy lottery tickets. Also, give the car back to them. If the customer comes in, seems to understand the importance of keeping current and has some money (and proof of insurance), work with them.

Thirdly, the way you handle mechanical failure plays a huge role in your delinquency rate. If the car won’t go, they won’t pay. You have to decide how you are going to handle breakdowns and make sure your customers understand your policy so expectations are controlled later. We offered a third party, 24,000-mile extended service plan on every vehicle we sold and had penetration on 98 percent of our loans. The policy covered far more than just the power train and allowed our customers to receive repairs for a small deductible while our shop consistently made a profit. The service contract we used offered nationwide roadside assistance and up to 150 miles per incident towing so our vehicles were not left on the side of the road or in a parking lot. Even if the service policy’s expiration date or mileage limit had passed, many of our customers would still call to check coverage, which informed us of a problem.

Controlling delinquency is about anticipating problems that arise in our business and having policies in place to deal with them. In most cases, delinquencies are personal customer issues projected onto you. Making certain your associates and customers understand your expectations in each situation will help you keep better control of your portfolio performance.

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Permanent link to this article: http://blog.ncm20.com/2013/08/controlling-delinquency-in-buy-here-pay-here/

Gene Daughtry

Managing a Healthy BHPH Portfolio: Recency vs. Delinquency

financial_portfolioI have heard how important keeping your accounts current is to the success of a portfolio of receivables. I would put that statement down the list four or five spots when discussing how well your Buy Here, Pay Here portfolio is performing. In Buy Here, Pay Here (BHPH) you need to manage your receivables portfolio differently.  Why? Because in BHPH, many of your customers are going to have trouble keeping up with their payments; it’s simply the nature of the business, but one that with proper processes and oversight, is manageable and will provide an excellent return on your investment.

In my BHPH operations, I would tie a small bonus to the percentage of current accounts to help keep my collectors’ eyes on who is not paying as they should. When a collector has several hundred accounts to maintain, I want their focus on what is most important – cash flow. Because I feel cash flow is the primary bell weather of a successful receivables portfolio, I place higher priority on two other important receivables management metrics: recency and collection potential.

In a BHPH portfolio, your recency metric should generally remain, at a minimum, in the 90’s. This means 92 to 96 percent of your open accounts have made payment in the last 30 days. Collection potential is the amount of payments your portfolio has due each week based on contractual terms. This is the money, the life blood of your operation. If you are taking in 110% of total payment dollars due each week (average weekly payment times number of open accounts) while meeting your recency goals, you will see the performance anticipated from your portfolio and the cash flow you should expect.

There are other dollars coming in, of course:  down payments, deferred payments, wholesales, service income, cash deals, payoffs and other services you may provide. Generally, I experienced 72 to 74 percent of my monthly cash flow as payments. My collectors’ largest incentives each month were tied to recency and collection potential. Both must be met to receive the bonus.

So many dealers I have worked with are very concerned about missed payments. Some of these dealers will repossess a vehicle one or two days after a payment is missed. My approach was different.  I would make every effort to keep the vehicle with the customer. I would try to find ways to collect our money. Yes, if customers break too many promises or skip out then I would advise you go after the car. If the customer comes in and wants the car back, I’d give it to them. The customer and I would have a discussion beforehand, of course. My advice is to require proof of insurance and some money before they drive off, but not require everything that might be due. You want the customer to get the message that you are serious about getting your money, but you also know that if the car is on your lot the money isn’t going to come in, either.

Repossessions are a fact of life in BHPH. Don’t be fearful of them. Even though you will refer to repossessions as “losses” on your P&L, the aggregate of your repossessions should actually be profitable. Look at every deal like a hand of poker. The hand is dealt and must be played out. Folding might save you money but you’ve already made a big investment and you want to win. Winning is making profit on each deal. So stay with your customers as long as they are working with your collectors. Watch your exposure or “cash in deal” as you make decisions on delinquent accounts.

The bottom line in BHPH is that dollars through the payment window is the score to go by. Knowing how much should be coming in and tracking that number will be more important than if all of your accounts are current today or not. As long as you bring in more than what’s scheduled and all of your accounts paid you something this month, then you can focus your attention on your expenses and selling more cars.

Gene Daughtry teaches BHPH Service and Reconditioning Management  for the NCM Institute.  To learn more about management training for BHPH dealers and managers in sales, service and reconditioning, and underwriting and collections management, and to register for our next classes coming up in August and September, click the link below or call NCMi® at 866.756.2620.

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Permanent link to this article: http://blog.ncm20.com/2013/07/managing-a-healthy-bhph-portfolio-recency-vs-delinquency/

Gene Daughtry

What Happens in Vegas Better NOT Stay in Vegas

I recently attended and participated in the NABD Dealer Academy and the NABD Buy Here, Pay Here (BHPH) Conference and, man, what a week it was! Ken Shilson and Ingram Walters of NABD have a tremendous understanding of the business from two different perspectives, which has honed the Dealer Academy into an excellent learning environment for helping guide new dealers toward success in BHPH. Participants were able to visit with many industry experts, including Brent Carmichael and yours truly, to discuss ways of continuing successful growth and profitability in the future.

During the Academy, there were many automobile dealers and other business people in attendance interested in learning about the BHPH business. The Dealer Academy stepped these entrepreneurs through a series of presentations, including mine on business models to others on benchmarks, underwriting tips and compliance to discussions about having a Related Finance Company or RFC, collections and much more. Other classes covered capital acquisition, finding inventory, reconditioning those vehicles for effective selling and how that aids in a successful portfolio. Additional tracks were about the importance of correct software with pointers on deciding which DMS is best for your operation, along with topics like credit bureaus, payment devices and metrics for monitoring your numbers, including joining a 20 Group.

All the training culminated into dealer roundtables facilitated by industry experts on various subjects. The roundtables had the Dealer Academy participants and experts standing together “eye to eye” discussing specific issues in a format similar to participating in a NCM 20 Group.  I really believe discussion with peers is helpful for the participants to get a deeper understanding of the flood of information they received during the Academy. I held a roundtable on reconditioning which had a tremendous response. The conversation went far beyond the subject and showed me there is a real hunger to learn how to guide a new operation in the right direction – and avoid costly mistakes.

The BHPH National Conference began on Tuesday in grand fashion with the largest exhibit hall in the history of NABD. The education began immediately with the topic of compliance, a major theme throughout the event. There were education tracks that dove deeply into inventory, recovery, social media and customer retention. Each topic was taught by industry experts with contributions from dealer-operators who provided their unique perspectives on the subject.

The last day of the conference included more education from a variety of industry professionals and dealers on collections, current developments, technology and compliance. Everyone heard from John Linnehan Jr., this year’s inductee into the BHPH Hall of Fame. Following the Hall of Fame presentation, NCM moderator and consultant, Brent Carmichael, went through NCM’s benchmarks and trends for the industry relative to the past tax season. Brent’s use of trends established from years of NCM 20 Group benchmarks revealed how the critical first quarter has dramatically changed over the last several years.

The conference ended with a best practices panel, helpful for current and potential dealers who were looking for the right resources to ensure they are operating or will start their operations the right way.  Similar to the advantages of an NCM 20 Group, the attendees of the NABD Dealer Academy and Conference did themselves a huge favor getting together with other dealers who have experienced the same issues and getting to know the vendors the successful dealers work with. What an advantage to  gather invaluable information from their peers and the exhibitors so quickly and all in one convenient place!

Our industry is constantly changing and interest in BHPH is always growing. This was evident by the turnout of dealers and their great questions throughout the events. There is a lot of money that can be made in Buy Here Pay Here – and a lot of headaches that can come with it. Having an opportunity to find guidance from others who have experienced it can potentially save a dealer millions in unnecessary errors.  So in this case, what happened in Vegas better NOT stay in Vegas!

Permanent link to this article: http://blog.ncm20.com/2013/06/what-happens-in-vegas-better-not-stay-in-vegas/

Gene Daughtry

Why the difference in price?

consumer-protectionIn my 16 years in Buy Here, Pay Here operations, we marketed the business as “in-house” or “bad credit” financing. We sold a few cars for cash, but we were predominantly a Dealer-Controller Financing business.  Since the inception of the Consumer Financial Protection Bureau (CFPB) and its complaint website, consumerfinance.gov/complaint, the FTC is watching these dealers more closely than ever.

There are several resources available to assist automotive dealers avoid illegal and deceptive advertising and marketing practices.  I’ve compiled a short list of links to what I consider the most pertinent, but there are other good resources available, as well:

As a dealer, you must be careful that your salespeople are not telling customers that due to their credit, they cannot purchase the car you advertised for the ad price. You know it happens when the customer is declined for “bank financing” but approved for special financing or second-chance financing. The special financing approval requires a large loan discount. Your salesperson goes out and tells the customer they can get the car they want, but the price will be “x” instead of the advertised price. The same happens if the only way to get a deal approved is through the store’s BHPH operation.

Some independent dealers are primarily “retail” where they offer prime and subprime indirect financing. Some of these dealers will offer a few in-house loans to the right customers. If these dealers offer low prices or payment specials in their advertising, they need to be sure how the above scenario is handled by the salesforce. Many BHPH/LHPH dealers do not advertise prices or payment deals in order to prevent false advertising issues or bait-and-switch pricing. BHPH dealers generally advertise what they do — help the consumer with bad credit. Our message is about services available, vehicle dependability and how we can help most everyone get a vehicle.

I always tell retail dealers that almost every process in their retail operation will be opposite in a BHPH operation. Your salespeople in retail generally up the customer, meet and greet, qualify, test drive, trial close if “we can get the figures right,” then go inside and negotiate.  Then they try to get the deal approved. In BHPH or special financing, after a salesperson ups the customer and begins to qualify, the salesman brings the customer inside to find out if they have an approvable deal, which then determines what vehicles to show them.

If you are doing deals in secondary financing or BHPH, you might consider advertising that does not contain vehicle prices or payments. Those ads open the door for possible FTC violations. With commission salespeople and managers it is hard to resist “converting” customers from one to the other. You probably already know that if your customer has landed on a particular vehicle that is “value priced” online or in other ads, your people cannot legally add a discount fee back to the price and do the deal.

The CFPB’s hotline for consumer complaints is just beginning to be known. As dealers, there are enough headaches to go around without creating them yourself. Market into your primary business and attract the customers that fit your business model.

Gene Daughtry is a BHPH executive conference moderator, trainer and consultant for NCM Associates. He’ll be teaching “BHPH Service Management” June 5-6 in Kansas City and he’ll be a presenter at the National Alliance for Buy Here Pay Here Dealers Conference and Dealer Academy in Las Vegas next week.

If you’re a retail dealer thinking about Buy Here, Pay Here, you’ll want to read Gene’s “Straight Talk About Dealer-Controlled Financing” whitepaper. It will help you understand the differences and similarities between franchised and BHPH operations and explains the various types of BHPH business models you need to consider before getting started. Get your copy here or visit Gene at NABD in the NCM exhibit booth, or at our Open House on May 21 in room Alsace I from 2:30 to 3:30 p.m.!

Permanent link to this article: http://blog.ncm20.com/2013/05/why-the-difference-in-price/

Gene Daughtry

The Sales Process in BHPH is Underwriting

BHPHIn BHPH, like any other automobile dealer, you’ll start the sales process out with a meet and greet. From there you should go in a different direction from other retail outlets. If you have been on a franchise dealer sales floor I am sure you or your sales staffs have joked about wanting a screening machine that they could walk a customer through for an instant credit reading. Since that doesn’t exist, your sales process is probably similar to: 1. “up” your customer;  2. meet-and-greet; 3. qualify; 4. land them on a rig; 5. proper walk-around; 6. trial close; 7. work the numbers; 8. ask for the sale.

In a BHPH operation, after you greet the customer, you do qualify them. Qualifying is the beginning of your underwriting process and helps your customer understand what you do. In my BHPH operations, we would ask customers to come inside and fill out a credit application before we began selling a car. Generally our salespeople would say, “Let’s go inside and see how we can help you, then we’ll look at vehicles you can drive home today.”

In BHPH, the sales process is really more of a sales outline and should be more about underwriting than selling. Frankly, selling cars is the easy part. In BHPH, information-gathering is a large part of the salesperson’s job description. No matter what the customer wants, the salesperson should go back to the outline and gather what the underwriter needs to make a decision. In BHPH, you are in the loan business and the focus is to build a successful portfolio. As a BHPH dealer the best information-gathering you will do is when your customer wants your help and is hoping for an approval.

No, every customer is not coming inside before picking a car. A few customers resist giving information until they are comfortable you have “the” vehicle they want. A few want details of your transaction before they will provide you with personal information and documents for verification. But the majority will come in, especially when your salesperson knows that selling before taking an application can be a huge waste of time.

Having this type of sales process requires flexibility and perception on the part of the salesperson. Any time you are dealing in sales, you have to be flexible. In my operations, our people were trained to understand and work with customers’ perceptions of car sales. Most customers coming to the store are uncomfortable. They are afraid of confrontation. They don’t want to tell the bad news story again, or they have a chip on their shoulder from their last experience trying to buy. Our salespeople were always working to get the customer inside so we could begin to determine what we had. Good underwriting helps you see who you are dealing with before the vehicle hits the street. The sales process is where that begins to take place.

Our basic underwriting rules were:

  1. Don’t sell them something they cannot afford.
  2. Don’t take the customer’s word for anything – always verify.
  3. Only sell to people from the surrounding area.
  4. Be honest with ourselves when underwriting.

In our operation, we filled out a detailed credit application and pulled a bureau. We required proof of income for the household (no proof, no deal). We asked for utility bills to help verify residence and we could see how they paid for the basics. Seven to 10 personal references (name, address, phone numbers and relationship) were required, and we checked them. Jobs and landlords were verified on every new customer. We used an internal score sheet as a guideline that included cash flow to help us understand the customer’s tolerance for new debt. Nobody rolled without verbal verification of full-coverage insurance. Obviously, we did not spot cars.

There are BHPH dealers that sell lower price cars and roll almost anyone that says yes. Other dealers use ignition shut-off devices or GPS units to increase confidence in their loan approvals; we did not. There are 1,000 ways to operate BHPH, so your process and underwriting should reflect your risk tolerance.

No matter what price vehicle you are selling or what your risk tolerance, your sales process should be considered an important part of underwriting and collections.

Gene Daughtry is a BHPH 20 Group moderator, trainer and consultant. To learn more about the opportunities in BHPH/LHPH, visit with Gene at the NCM open house next month at the National Alliance for Buy Here, Pay Here Dealer Conference in Las Vegas. To RSVP or email him directly at gdaughtry@ncm20.com.

Permanent link to this article: http://blog.ncm20.com/2013/04/the-sales-process-in-bhph-is-underwriting/

Gene Daughtry

So you’re Interested in Buy Here Pay Here?

dealers are making good profits in BHPH

You keep hearing that dealers are making good profits in Buy Here Pay Here. You have decided that you would like to pursue the business. What is your next step? After all you may have been in the car business for years. You understand buying and selling cars. You know how to run a compliant Finance Department and a profitable shop. Isn’t BHPH or LHPH just other ways of financing cars?

The answer is not as simple as it might seem. A BHPH or LHPH operation takes dedication. You will have to be diligent every day. You will not only be running a car dealership; you will be running a finance or leasing company. The daily operation isn’t more difficult, just different. You will have trouble being successful if you put a few high mileage, low dollar trades on a lot and have your used car manager do a few notes.

In BHPH/LHPH or Dealer Controlled Financing (DCF) you will be selling cars, dealing with service and doing contracts. Simultaneously you will be collecting the payments from customers that are financially challenged and need your help keeping their personal lives straight. Most of these customers are good folks and they intend on paying you. Just remember every time you sell a car it costs you up front. The money comes in as you collect.  

You should decide what type Dealer Controlled Finance operation you would like to be. I have been involved in 3 different operations in the last 16 years. One operation financed cars that had an ACV around $1,500 to $2,500. There was little recon and very little service offered after the sale. All loans were 24 months with weekly payments.

From there I moved to a BHPH operation that was part of a large high-line dealer group. We had an ACV average of about $10,000 with a full recon schedule spending about $700 a vehicle. We offered service contracts, GAP and Credit Life. Some of our loans exceeded $20,000 financed with 48 month terms and 26% interest (in Texas). This operation had a $17M portfolio with 2,500 cars on the books.

The last operation was a combination of the two. We kept the ACV closer to $7,000 average with a full recon schedule of about $600 PRU. We offered service contracts and GAP on every loan with 36 months being the standard term. Our loans would average about $12,000. We were in Arkansas where the usury was very low when we started and during 2012, we ran all loans at 7.5% interest rate. Our operation also reported all activity to Trans Union. 

All these operations were primarily BHPH. In other words we marketed the business as “in house” financing and we would sell a few cars for cash. Some dealers are primarily “retail” and they do a few in house loans with the right customers. I believe this is one of your first decisions as you consider a plan to become a Dealer Controlled Financing (BHPH/LHPH) operation. How you advertise, how your salespeople greet customers and how your shop operates will be different depending on what type dealer you have decided to become.

As with any automobile retailing business you will have accounting, service, inventory, sales and fixed operations. In BHPH or LHPH you will also have the functions of another company–your finance or leasing operation.  You will be building a portfolio that will require underwriting and collections. These positions are not typically filled from your existing associate pool.

There will be new compliance issues, tax laws, paperwork and operational aspects you may not expect, but if you are ready to get started there is plenty of help available. NCM Associates offers webinars, on-site and off-site training and consultation along with 20 groups specific to the Dealer Controlled Financing or BHPH/LHPH industries. You don’t have to go it alone or guess; invest in some training, mentoring or consulting. Save the money and headaches of learning as you go. Brent Carmichael and I have 40 years of combined experience we can share to help you through your BHPH adventure.

Gene DaughtryGene Daughtry is an executive conference moderator, trainer and consultant for NCM Associates with specialization in sales, finance and special finance for franchised and BHPH/LHPH dealership operations. To reach Gene, email gdaughtry@ncm20.com or call 913.649.7830.

 

 

Get help for your BHPH/LHPH operation from NCM!

Permanent link to this article: http://blog.ncm20.com/2013/02/so-youre-interested-in-buy-here-pay-here/

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