How do you market to clients with a big tax refund burning a hole in their pockets? How do you get to them before they mentally or physically spend the money?

Well, there are several approaches that work well. One is to get their attention during the filing process itself. This can be done several ways.

Signing up with a tax preparation service like TaxMax is a great way to have control of the funds. A.J. Ager, Finance Director from Al Serra Chevrolet in Colorado Springs, agrees. “We are signing up with TaxMax and have used them the last several years with a lot of success. We have control over the customer’s refund and that obviously means we have control over their purchase. All you do is enter the information into their system; they file the return and send the customer’s refund.”

One other great thing about TaxMax is they have a fourth quarter program that allows you to file a refund based off the customers last check stub. This will get the ball rolling faster for them to be able to get their money faster. TaxMax also has marketing materials that you can purchase and put on your lot letting customers know you can file their refunds and sell them a car all at the same location.

Another great tip that I have done is forming relationships with local tax preparation companies and setup referral programs. I would create brochures every year and pass them out to tax preparation companies close to the dealership so they could give them to potential customers. Then, we would spiff them when customers showed up at our store.

A.J. again agreed. I am pretty sure he got this from me at a Twenty Group several years back but he won’t admit it. “We set up referral programs with all the Jackson Hewitt, Liberty Tax Services, and HR Block locations within about 15 miles of the dealership. We pay their preparers every time a customer shows at our store regardless if they buy. If we can’t sell them, that is not their fault and we want them to keep sending us customers!”

Cindy Christensen, General Manager of Herbie’s Auto Sales in Greeley Colorado, has a marketing tip that works well for them. Herbie’s does a great job of taking care of their customer base and the majority of their sales each month come from referrals or repeat customers. “During tax season, we send emails to our database of customers letting them know we will match their down payments up to $1000,” says Cindy. “Plus, we also have flyers all over our showroom and in our service departments about this incentive so even if a customer isn’t in the market now; they can refer a friend or family member to take advantage of our Herbie’s Family Rewards program. Lastly, we make sure our BDC contacts all of our buy here pay here customers with low balances (under $2000) to invite them to take advantage of this opportunity to get a new vehicle.”

Lindsey Ford of Wheaton in the D.C. metro area has another approach to getting customer in their dealership that has been influenced by the current economic times. “We are focusing on marketing to less people but marketing to the multiple times”, says Mark Law, Finance Director. “There is a lot of mistrust with customers these days on if they can get approved so we try to reassure them by marketing to them with the same message just a couple different ways and through a couple of different mediums.”

Mr. Law continued, “We did a mail piece from our customer database and then did an email blast with the same message to the same customers. Also, we purchased an email list of customers in close proximity to our dealership and sent them four separate emails. We anticipate the multiple contacts will strengthen customers trust in us and make them are more likely to visit our dealership.”

These are all some great ideas but let me mention, marketing to your existing database should not just happen this time of year. Your database is your most precious sales asset and it should be treated that way. I truly believe a new position will be created soon in dealerships as Database managers.

Next week, we will dive into some things that you can do to make sure your inventory is ready for the tax rush. Until then, I wish you and your families a Happy Thanksgiving!!!

Used car departments have always been the key to any dealership reaching its maximum profitability. In these current economic times with inventory cost up and grosses down, you need to very smart about your inventory practices.

When was the last time you looked at what is selling for you on your used car lot? I don’t mean what sold last week, what used cars have sold for you over the last year or two. A report to show you this is available in any DMS. Pull that report and compare it to your current inventory. You may be a little scared!

With turnover the way it is in our industry, every used car manager is going to have his “favorites” that he believes sells better than others. It is true having several program Camry’s at a Toyota store works well but loading up a Ford lot with them is not a smart proposition.

Pull this report and look for trends. Look what the public comes to your lot to buy.  Rule out the one or two sales of a given model. When times are good, you can take a chance a “cream puff’ that gets traded in.

Look for models that you have consistently sold month over month. This is what you want to have on your lot. Used car prices are fluctuating so fast these days, make sure to have vehicles that will turn and earn!

Also, look at how long it took these models to sell on average. Try to stock inventory that has a fast turn over.

Look at average miles and ACV of what has sold for you. This will all give you valuable information on what your inventory should look like.

When you are done analyzing this information, you should be able to put together a virtual inventory that works best for your store. Go compare that to your current inventory and see how many units you have that do not fit into your ideal inventory model.

Soon, new car supply will catch up with demand and then demand for used cars will decrease causing values to decrease. Don’t be kept with a lot full of water!

Think efficiency and play to the majority in this economy to maximize your profits. When things get better in the economy, then you can take a chance on that used Porsche on your Ford lot because you think it will increase your drive by traffic.

Without his extensive use of Social Media Barack Obama would not be the president of the United States Today. From a relatively unknown senator to his meteoric rise to the presidency of the United States, Barack Obama was able to harness the powerful new medium of Social Media to propel himself into one of the most powerful positions in the world.

The numbers are staggering, at the time of his election Barack Obama had over 3.1 million fans on his Facebook page, John McCain just 614,000. But he didn’t stop there, his YouTube channel had over 20 million views and just over 825,000 friends on Myspace.

Check out the rest at:

Persuasive Concepts

It’s almost that time of year and no I don’t mean Christmas. I mean the time of year that helps car people all across America pay off those credit card bills they accumulate during Christmas. Tax season is upon us and it is greatly needed after the tough financial year that has been 2009.

I have had the pleasure of interviewing several well run special finance operations and will share tips from them in the coming weeks. Plus, I will be sharing tips from my over 17 years of special finance experience. This will be broken down into a six part series that talk about pertinent subjects like marketing, inventory, and sales processes.

In general, tax season seems to start earlier and earlier every year. People file for refund loans based off their last check stub and this has caused dealers to start their preparation earlier.

Recently, I spoke with B.A. Nerison, owner of Wheel City Auto Sales in Sioux Falls South Dakota. Mr. Nerison had this to say about the upcoming tax season. “Be prepared because it will come and go fast! Customers are getting their money sooner (via electronic filing) and the tax window is short, unlike a few years ago. No more can we count on two solid months of tax money. It’s turned into a month long event at best.”

With economic times the way they are, there are sure to be other challenges that are unique this year as opposed to past years. “Customers that are unemployed or have fallen behind on bills will have their money spent before they get it,” said Nerison.

One person who echoed that sentiment is Dustin Jones, Finance Director for Boch Honda outside Boston. “Now, more than ever, families across America need their tax refund checks,” said Mr. Jones. “Our company is focused on meeting customers’ needs and through our advertising, we have portrayed that we are not looking to seize the customers tax refund but help them purchase a vehicle utilizing as little of their refund as possible.

“We know that a lot of people are struggling this year and taking more of a community service approach in aiding them,” continued Jones.

When I asked Mr. Jones when they started preparing for tax season, he responded “At the end of September”.

As an indication of how early tax season is starting these days, TaxMax offers a program called their “Fourth Quarter Program”. It is a program that estimates what a customer will get back on their tax return, look for reasons that would prevent them from getting a return, and offers loans based off their tax refund amount.

Al Serra Chevrolet has used Taxmax for years with great success. A.J. Ager, Finance Director in Colorado Springs, loves the program. “ We signed up for TaxMax again this year. It is a great way to control your customer’s refund.”

It is easy to see how powerful it could be if you control the customers refund. You know how much they are getting and the money comes to you first!

“You enter the information into their system”, continued Mr. Ager. “They file the return and send you the customers refund.”

This is great for customers that walk into your showroom but is it also good to go find your local tax preparers as well as local H.R. Block, Jackson Hewitt, and Liberty Tax Services offices. Make sure they know you are a dealer that helps credit challenged customers and give them a bird dog on customers they send to you.

I will share some great marketing tips to get a bunch of customers from these local tax preparation companies in my next edition of the tax season checklist. Until then, take a look at your operation and see if you are ready for tax season. Tax season is the equivalent to cash for Clunkers for a special finance department!

Repossessing a vehicle is never a good thing, but technology has certainly come a long way in helping dealers do just that. The Special Finance Coach discusses how to keep customers on time with their payments, as well as how social networking sites like Facebook can help when they’re not.

Contrary to popular belief, repossessing a customer’s vehicle should be the last resort when it comes to the buy-here, pay-here (BHPH) business. It’s bad for business and it’s an outdated philosophy.

Unfortunately, some dealers are ready to “hook” a customer’s vehicle if they are one day late on a payment. What a dealer needs to remember is these customers have a history of not paying on time. That means they need to be trained on how to stay current on their payments, which is what payment assurance devices are designed to do.

Another common misconception is that all devices are created equally. There are two basic types of devices: GPS devices and payment reminder devices. Both tout shut-off features, but they vary greatly in how they’re used.

Payment-reminder devices are for dealers who want to collect their money. They are also proactive tools that help dealers nurse customers along during rough times. GPS devices are for dealers who want to collect their collateral. They are reactive tools that allow dealers to quickly make repossession decisions.

Both products serve a fantastic purpose and can be great assets to any BHPH dealer. Deciding on which works best depends on that dealer’s business plan. “Dealers have different ways of managing their portfolios and we have products to assist them with any business model,” said Jake Frank, co-founder of PassTimeUSA. “In fact, our Elite product is unique to the industry in that it combines both the GPS and payment reminder technology.”

Payment assurance devices go a long way in eliminating “skip hazards,” but skips are going to be something every BHPH dealer has to deal with. Repos will happen to any portfolio, but at least you have your collateral to remarket or sell off at the auction to minimize your loss.

On a skip, you will have to write off the entire amount of the outstanding contract. If you are new to BHPH, one of your fundamental underwriting guidelines must be to eliminate possible skips. That means you need to be wary of customers with credit bureaus that list addresses from several different states.

One precautionary measure I always recommend to my dealers is to Map- Quest the customer’s address. If it’s an invalid address, this is the easiest way to catch it. That’s not to say I haven’t been fooled before, but most of those instances occurred before technology was available.

Cybertracking Revolutionizes Collections

I once had a customer’s phone bill with his address on it, which I thought was golden. I went to his house to collect payment on a bounced down-payment check, but the address did not exist.What a horrible experience that was. Turns out the customer went around writing hot checks after opening anaccount with $50.

Regardless of how diligent you are, this situation will still happen every once in awhile. Some customers will just try to get one over on the system whenever possible. I refer to these people as “credit criminals.” They will clean up their credit reports and lie right to your face just to be able to get into a car.

One time, I had a customer run on me when I was heading up a BHPH department in Louisiana about 15 years ago. It took a couple of months, but we finally tracked down the customer and repossessed the car in Trout Run, Penn.

Professional recovery companies specialize in “hunting” down your runaway customers, and the most common practice being used today by recovery companies is a process referred to as cybertracking. Cybertracking does not replace fundamental collections practices, such as calling references, but it is a powerful tool for when a credit criminal tries to run.

Ron Brown, president of Confidential Security Investigations (CSI Group), is a self proclaimed hunter. His company has been a leader in cybertracking. “In all the years that I have been in this business, one thing has held true throughout: Man’s ability to skip trace has always paralleled their ability to communicate,” he said. “Early on, hunters would track people on foot. Then, as years went on, they started to track people by the paper trails they left behind. Now, we follow their electronic trails.”

Collectors Employ Social-Networking Sites

There are several companies out there that are in the business of gathering data. Much of their efforts are fueled by their ability to track an individual’s interactions and conversations online. Some of these sources are pay-as-you-go sites that provide access to public records, such as MasterFiles.com. There are also sites that allow free access, such as brbpub.com or Black- BookOnline.info.

“The key is being able to decipher the data,” said Brown. “Some data can be very misleading. Have you ever pulled your credit bureau and saw a job you never worked at or a residence you never lived in? We are trained to see the difference between the real and fictional data.”

Social-networking Websites are also great tracking tools, said Brown. “People update their Twitter, Facebook, and MySpace accounts several times per day, allowing anyone following their actions the ability to know just where they are and what they are doing,” he noted.

Imagine a skip feeling like he or she got away with the car without paying for it, and then heads out to lunch one day and Tweets: “Off to lunch at my favorite Italian restaurant, Tony’s.” And just as soon as he hits send, the CSI Group intercepts the updated message and sends a local field agent to Tony’s restaurant to look for their collateral.

Technology is assisting many BHPH dealers across the country to increase their profitability and minimize their losses. These products require a small upfront investment for a huge long term profit.

Next Generation Dealer Services  acquires The National Association of Car Sales Professionals (TheNACSP.com), a web portal that offers professional web services to the car salesperson. TheNACSP.com leverages the power of blog style websites using both search engines and social media to generate incoming leads for salespeople.

Boston, Massachusetts- November 13th 2009 Next Generation Dealer Services (NextGenDealer.com) announced today  that they have acquired the forward thinking TheNACSP.com. TheNACSP.com is an association of car people, each with their own “blog style” website built on a platform that was designed from the ground up to be search engine friendly.

TheNACSP.com was founded by Scott Sanders, a former Internet sales manager, who was always thinking of ways of generating incoming leads. Building and maintaining a website is costly, while hiring a professional SEO expert was out of the question due to price, Scott had the idea of creating a website that many could share in the expense while still giving each salesperson their own website, and TheNACSP.com was born.

Wanting to take the vision a dozen steps further Next Generation Dealer Services have acquired TheNACSP.com with the intention of making the site the go to place to buy a car. Propelled by the notion that people would rather buy from people Next Generation Dealer has a plan in place for national exposure using national radio and social media tactics that they have pioneered.

“We are going to make this huge!” Says Rob Hagen, CEO of Next Generation Dealer Services. “With the direction the internet has taken, it only makes sense that  people would jump at the idea of getting to know their car salesperson before they ever stepped foot at a car dealership. What we will be doing is building trust by being transparent, letting the customer see who the salesperson is before they even contact them.”

“This is the 21st Century,” Rob goes on to say. “We want everything now, we no longer have to look for news because the news comes to us. Searching for a car online can be daunting because no longer do you have one “lot” to look at you have hundreds and thousands of them. TheNACSP.com will give the customer an avenue where they can have a professional do all the work for them.”

While you can still go to TheNACSP.com and sign up, Next Generation Dealer Services will be giving the site a facelift as well as moving the domain over to a new URL.

Rob Hagen
Phone: (225) 938-0993
Email: RobH@NextGenDealer.com
Web: NextGenDealer.com

Form AJ Ager, Finance Director of Al Serra Chevrolet in Colorado Springs

Let me pick your brain on a couple of things

With BDC shit

How do you feel about auto responders?

How often do you follow up on internet leads?

How much do you like templates?

Here you go AJ:

How do you feel about auto responders? It is an absolute necessity. Customers are looking for instant gratification. Now it is important to have as much information in your emails to be written in HTML so the auto responders can be as personal as possible. We have actually have a guy on staff that does copyright work and then we turn them over to out IT guy to write the HTML for our clients.

How often do you follow up on internet leads? You call them 3 times per day for the first three days (only leave one voicemail), 2 times per day for the next four days, 1 time per days for the next 8 days, every other day till day 45, and then every third day until day 90. Then, you want to email them every day for the first seven days (have different messages each time) and then every third day.

Here are some stats from when I was in Houston. I wanted to know how much work it took my BDC to get in a customer that eventually sold. I studied about 300 sold deals to gather this information. It was very interesting.

17.6 days old – average age of a lead when they walked in our dealership

9.2 phone calls – average number of calls it took to get someone in the dealership

4.9 emails – average number of personalized (does not include auto responders) emails it took to get someone to visit the dealership

22% – percent of sold customers that started off with only an email address and no phone number….some people like to communicate by email first and you have to earn their trust before they will take the next step

One other thing about this study, it was only information on sold customers but that was not the only thing I tracked. It is important to track contact, appointments, shows, and sold to get a full picture. If any number drops, you know what your team needs to work on.

Contact rate gets low – not enough dials by the BDC….they need to work harder

Appointment rate low – not asking enough, not demonstrating a sense of urgency, not controlling the conversation, maybe losing customers with tone…this is a broad area. I have a report that I make the BDR’s fill out if they have a low appointment rate until it returns to standard. The report has them fill out the reasons an appointment was not set anytime they make contact but no appointment. You will start to notice trends and know where you need to train.

Show rate low – not setting real appointments, not answering any of the customers concerns (many scripts are designed to keep the customer in the dark and this will hurt your show rate….have a script that asks for customer participation and train your people to answer the customers concerns), not resetting appointments (if a customer is not there in an hour from the time they are supposed to be, BDR’s need to be calling them. REAL IMPORTANT: They need to call and not badger the customer by asking why they didn’t show. They need to call and say “I am so sorry I was busy but I wanted to call you up and see how you are enjoying your new ride?” This customer who was scared of being turned down is now regretting now showing since it is obvious by that statement that your dealership gets a lot of people in cars. They will reset appointments and show.), asking for too many stips (this will overwhelm people….most information can be found online these days)

Sale rate low – this not a BDC thing but it is a way to manage your overall department

How much do you like templates? Templates are okay if they are written right. A lot of them are not and use a lot of words that trigger a negative subconscious response from the customer….for instance, every time you say dealership, customers subconscious travels back to past negative car buying experiences of theirs or friends…You need to eliminate certain words to keep people’s minds in Present Time. This is the only way they can receive the information you are relaying to them. Another example, ever hear a commercial for Ditech? They used to always say we can have an answer back for you in an hour…..what does this mean? That there is a possibility you could be turned down….Listen to their commercials now, they say we will have your approval request back to you in an hour….This shit works!!!!!!

If you know me, I am sure you have read something I have written about my Dad. He has been my one and only hero my entire life. My Dad was in the Navy during World War II and received numerous accommodations including two Bronze Stars, the Silver Star, three Purple Hearts, and the Navy Cross. More of his story can be found at:

http://specialfinancecoach.com/blog1/my-hero/

This will be my first Veterans Day since my Dad’s passing. He passed away fittingly on Memorial Day this year. It was my first experience in losing someone close to me to Cancer. It is such a terrible disease and I pray that one day a cure is found.

I haven’t wanted to talk about his passing almost as if I didn’t say anything, it didn’t happen. This changed recently. I met a gentleman named Chris Purdy at a book signing. He was signing his book named The September Effect. In hearing the description of the book and the obvious passion Chris had for it, I was moved to purchase it immediately.

The September Effect is a story about his Dad’s struggle with cancer and the subsequent emotional struggles Chris went through in the years after his death. I enjoyed reading every page and it made me realize the feelings I am having are normal.

What can’t be explained or rationalized are the events that recently happened at Fort Hood. Our soldiers prepare and understand the possibilities of being injured or killed in a military zone but to be gun downed by someone in the same uniform on their home base. I know it will take a long time but hope the men and women of our armed forces that were affected by this can get their lives back together.

Every day we enjoyed freedoms that are protected by our military. On this day, please remember to be appreciative and thank a soldier.

This year, I won’t have the opportunity to call my father and thank him personally but I know he is still listening.

Thank you Dad for your service to our country and God bless America!

Happy Veterans Day!

As we discussed last month, more and more franchise dealers are building up their in-house finance portfolios as many lenders continue to restrict or discontinue their subprime programs. In speaking with dealers who have already made the jump into the treacherous but profitable waters of buy-here, pay-here, we also learned that the key to success is preparation and education.

Like any aspect of a well-run business, good management and the right tools are two keys to success. Let’s keep that in mind as we take a look at some of the resources that are available to dealers who want to manage their loan portfolio and, at some point, move that portfolio over to a third party for a quick cash injection.

Count your losses

Randy Oler is in charge of Gold Key, the dedicated BHPH operation at Dahl Ford in Davenport, Iowa. For Oler, the first key to success is determining which customers are most likely to make their payments.

“You have to make the right decisions as to who you put in cars, and you have to be able to collect your accounts,” he says. “Many dealers allow their emotions to get involved in underwriting decisions. That will get you in trouble every time. We verify everything on the credit application to make sure the customer is telling the truth.”

As the lenders who serve the special finance market figured out a long time ago, there’s no sense in building a portfolio if you can’t collect on it. That’s why those firms place so much emphasis on verifying every piece of information on the app. OK, we want to lend money to customers who are truthful, but honesty and timely payments aren’t necessarily related. So wouldn’t some kind of probability-of-payment model come in handy?

That very notion inspired Richard Vanderport, managing partner of Chesterfield, Mich.-based Lender to Lender Financing LLC, to develop software that would give dealers a likelihood of repayment for each customer. I got to see it in action at this year’s NADA conference.

“Over the past several years, we’ve taken thousands of completed contracts and broken them down into 110 fields to give over 12,000 different combinations of probability of repayment from the customer. We believe that should be the starting point,” Vanderport said. “As a dealer, if you have factual information [for] the chances of repayment, you will know how much funding is needed and you can set a reserve aside for bad debt.”

Pay attention to that last statement — there will be losses! In my experience, you can count on missed payments in the neighborhood of 25 percent. For that reason alone, it’s best to put at least that much aside for reserve. Another way to ensure you’re adding up all your figures correctly is to seek advice from your fellow dealers.

“Joining one of Leedom and Associates’ BHPH Twenty Groups was one of the important things we did for our profitability,” Oler says. “We were averaging $1,600 per car sold before we joined our group. We have now raised our average to $4,200. You don’t want to be the guy with the lowest numbers in the room, but our group was very supportive in helping us reach the benchmark numbers we’re at now.”

So did Gold Key’s losses go up along with their gross profits?

“No,” Oler says, “because our fellow group members helped us get better at collections as well, and we realized that the price a customer pays for the car does not affect their willingness to pay.”

Portfolio review

That leads us to another objective for many dealers who enter the BHPH arena: Build up a portfolio that’s solid enough to attract attention from third-party service providers.

We’re all well aware that Triad Financial, once a leading special finance lender, is no longer buying contracts. What you may not realize is that Triad is still very much in business. It’s now focused on portfolio management and working with dealers, dealer groups, other lenders and even credit unions to collect every cent its clients are owed.

“Companies like Triad have already established the large-scale infrastructure needed to service loans cost-effectively,” says Scott France, the North Richland Hills, Texas-based firm’s vice president of portfolio management. “It would take many years — and a huge budget — to set up the same technology and systems from scratch. Even more importantly, servicers that specialize in vehicle loans often have decades of industry expertise. Dealers can leverage that knowledge to achieve the best results possible for their portfolio.”

Of course, regardless of whether you plan to move your portfolio, the same standards apply.

“The dealership may choose to set credit criteria and approve the deal themselves, or outsource this process to a third party that has data-driven models used for loan originations,” France says. “Either way, the loan agreement, bill of sale and title work must be compliant with state requirements for the loan to be valid. The vehicle sale price and loan down payment dictate how soon the loan will be profitable.”

One finance company that has continued to fund customers with derogatory credit is Los Angeles-based Westlake Financial. Recently I learned that the firm also has a program for novice BHPH dealers who don’t necessarily have the kind of capital it takes to start an in-house operation.

“Westlake’s ProfitBuilder program is the perfect way for dealerships to start out in the BHPH business,” says Mark Vazquez, the company’s vice president of sales. “Dealers get the best of both worlds: the flexibility to finance difficult-to-place customers, while at the same time, leaving the task of servicing the loan to us … all while receiving monthly payments from the portfolio.”

In a nutshell, Westlake will front the cash for the metal and allow the dealer to keep the down payment. They also handle the collections, allowing ProfitBuilder dealers to save some of the expense of a full, in-house collections department. However you choose to approach it, BHPH can be extremely profitable, and there’s no better time than now to get in the game. Make a strong business plan and don’t deviate from it. Make good underwriting decisions, collect your paper, and get help where and when you need it.

Rob Hagen is the founder of SpecialFinanceCoach.com, a Houston-based consulting firm specializing in department setup and growth.

Buy-Here-Pay-Here Business Plan

RAISE THE FLAG: As new-vehicle sales continue to slump, many franchise dealers are considering adding a buy-here, pay-here operation for the first time.

As financing for credit-challenged customers gets harder to find, more new-car dealers are turning to in-house financing to get the deal done.

Albert Einstein once said, “The definition of insanity is doing the same thing over and over again and expecting different results.” In 2008, many subprime lenders tightened their guidelines or closed up shop, leaving dealers to find new ways to finance their special finance customers or face the same fate. Taking their cue from Einstein, many franchise dealers are rethinking how they do things as new-vehicle sales continue to shrink.For years, buy-here, pay-here has been perceived as a good way to sell used cars, but not for big franchise stores. Those days are changing, and dealers are watching too many customers who would have been approved for an indirect loan a year ago walk out the door. In response, many new-car dealers are considering adding a BHPH operation to improve their used-car sales.

This trend comes as no surprise to Ken Shilson, president of the National Alliance of Buy Here, Pay Here Dealers (NABD). He believes restricted credit markets have created a perfect opportunity for dealers of every stripe to offer their own financing.

“There has never been a better time for franchise dealers to increase their profitability with buy-here, pay-here,” Shilson says. “Dealers are telling me, ‘We’ve got to squeeze out every penny. We need to find new profit centers.’ Well, with the right vehicles, processes and training, BHPH can turn your wholesale loss into a profit.”

Getting started

It’s an exciting prospect, but you don’t want to jump into buy-here, pay-here blind. As big a potential profit source as it is, BHPH can put you out of business fast. Do your homework in advance to ensure success.

“Many franchise dealers are not comfortable with the idea, and the truth is, it’s a whole new business,” Shilson says. “If you’re going into it with no experience, go to NABD first. Put yourself through some training sessions and get comfortable. Just know that you’ve got to understand BHPH well enough to manage it and supervise it properly.”

Laredo-based Sames Auto Group opened Texas’ first Ford dealership in 1910. Sames has grown in leaps and bounds over the years, and the group now includes Mazda and Honda stores as well. Hank Sames, the fourth generation of the Sames family to lead the organization, says BHPH has already kept them in business through some lean times.

“We started doing buy-here, pay-here in 1991,” Sames says. “We started small and we’ve built it up every year. It’s been a great complement to our traditional sales. We’ll do 150-plus BHPH deals this month.”

Considering most dealers average between $3,500 to $4,500 gross profit on each BHPH deal, I often wonder why more new-car dealers aren’t in the BHPH business. According to Sames, those who don’t prepare properly are quickly scared off.

“Too many dealers will stick their toes in the water, get burned and quit,” he says. “You’ve got to be either in or out. It’s a real business, just like any other. Go to a training class. There are laws to learn, tax issues … but it’s nothing that can’t be done.”

Another dealer who has reaped the benefits of the BHPH business for years is Dahl Ford in Davenport, Iowa. Fifth-generation principal K.V. Dahl offers in-house financing from two locations on opposite sides of town.

“Our BHPH business is very profitable for us, but we manage it very thoroughly,” Dahl says. “We only want to do about 20 deals a month at each location. That is what we are staffed to handle. That is where a lot of dealers get in trouble. It is easy to lend the money, but it doesn’t mean a thing if you can’t collect it.”

So, you might ask, why not add more staff to increase the sales?

“We feel like 20 deals per is a good number in our community,” Dahl says. “One thing we look at very hard in our underwriting is the residence stability. We started our BHPH operation to provide a service for customers who were unable to receive normal bank financing. Everything we do is designed to emphasize our ‘Dahl Difference’ image. At our Ford store, we have extremely high CSI scores, but we strive to make sure to take care of our BHPH customers just as well.”

Jumping in

Now that you have decided to get into the buy-here, pay-here business, what’s next?

Start by visiting NABD at www.bhphinfo.com. The association is a tremendous resource and a great place to start gathering information and look for educational opportunities. In any case, your first step must be to create a comprehensive business plan and stick to it.

The most fundamental part of any BHPH business plan is the underwriting guidelines and, in particular, the cash-in-deal commitment. Once you decide how much of your cash you’re willing to invest in each customer, you can start to figure out how much cash you’ll need in reserve to keep it going.

The phrase “cash is king” has never been more true than when it is applied to the BHPH business. The reason your business plan is so important is that it will force you to budget your portfolio. Let’s take a closer look at the cash flow scenario:

Joe Dealer decides on a cash-in-deal of $3,500 and wants to write 20 deals per month with a monthly payment of $300. After six months, Joe will have put $420,000 in cash on the streets ($3,500 cash-in-deal x 20/month x 6 months). Even if every account pays on time (remember, this is a fictitious example), Joe will have collected only $90,000 in payments. He can sell every one of his cars at a $10,000 profit, but if he doesn’t have adequate cash flow, he’ll sell himself right out of business. Cash is king!

Ideally, you want 18 months’ worth of cash to get started. Again, that’s why following your business plan is so important: If you start making exceptions and going over $3,500 cash-in-deal, you will become cash-strapped before you know it.

Collections and Inventory

Another quick way to run out of cash is to fail to collect on your portfolio. I once worked with a branch manager at a national subprime lender who said that special finance is “not a lending business; it’s a collections business.” Generally, you’ll want to have one collector on staff for every 200 accounts in your portfolio.

Your collectors have to be trained to have the same skills as counselors: not intimidating, but helpful. You want your customers to feel comfortable enough to call you if for some reason they are going to be late on their payment. You don’t want to threaten to repossess the car if they have a legitimate reason for not paying. This will only damage the trust your customers have in you.

When it comes to inventory, remember that many franchise stores already wholesale perfect BHPH units every day. When you finance those vehicles in-house, the amount you own them for is not important in relation to book value. There’s no bank to tighten down the advance you can get. So if you need to put a little more in a trade to make a new-car deal, you don’t have to worry about getting out of it at the auction. You will find a very appreciative BHPH customer for that new-car trade-in.

Next month, I’m going to talk about some of the resources available to dealers to help them get started in the buy-here, pay-here business. With special finance companies struggling, now is the perfect time to capture more business and build your customer base with a whole new profit center.

And as Shilson puts it, “If you can offer your own financing, the customer who doesn’t qualify today can start with BHPH, then maybe qualify for a new-car purchase down the road.”

Isn’t that what all franchise dealers want to hear?

Rob Hagen is the founder of SpecialFinanceCoach.com, a Houston-based consulting firm specializing in department setup and growth. Contact Rob Here