Operating successfully in
the buy here, pay here industry has become more challenging due to increased
regulatory pressures and competition.
Independent BHPH dealers have lost approximately 33% of their market
share during the last 24 months and best operating practices are not working
like they used to! In this article I
will discuss what is “driving” the increased subprime auto competition and suggest
ways for independent operators to compete.
The regulatory challenges are not going to disappear so the BHPH
industry must face them “head on”!
Increased competition by
credit unions, finance companies, and franchise operators has been “fueled” by cheap
money and an investor appetite for higher yielding returns. In response, Wall Street has flooded the
market with subprime auto bonds which have been sold to investors who assume
the credit risk. These securitizations
are a mixture of investment and non-investment grade contracts packaged in
tiers. The non-investment grade tiers
consist primarily of low credit score customers (below 500 FICO scores) or with
no credit score at all! Many of these
deals are with former BHPH customers who have been lured away by newer
vehicles, higher amounts financed, and longer contract terms (some up to 7
years). Independent operators should not
try to replicate these securitized deals because the default risk is high and
the deals are unlikely to “stay sold”. Performance of subprime auto paper is
best measured by collections, not sales, and these customers (and their
vehicles) will most likely return to the BHPH industry after they default. The day of reckoning cannot come soon enough for many independents. Hoping for change is
not a prudent strategy. Operators need to act proactively.
Some operators are competing successfully
with the aforementioned competition by:
1. Reducing leverage and increasing their
2. Adjusting their business models to their
niche market with a focus on long term collections and not short-term sales.
This is accomplished by matching each customer with the vehicle they can afford
through good underwriting.
3. Developing internal policies and
procedures which increase efficiency and cash flow and satisfy compliance
regulations. The new, and better, technology enables operators to do more with
less personnel cost.
4. Getting compliant with the current rules
and regulations in order to avoid regulatory scrutiny and penalties.
On item 4 above, dealers
must recognize that they are subject to regulatory scrutiny even when they are
small and when they are located in rural areas.
They must resolve customer complaints before they escalate into
regulatory issues and fines. The
compliance process begins by appointing or hiring a Chief Compliance Officer
and then implementing a compliance management system. If you believe the cost of compliance is
high, try the cost of non-compliance!
The compliance effort requires a commitment of financial resources and
training. Dealers must actually “walk
At the 18th
annual BHPH Conference in Las Vegas on May 24-26 at the Wynn, the program will
focus on the challenges discussed above.
This is the only conference exclusively for BHPH and will feature
leading attorneys, experts, and several new products and services to help
operators comply, regain market share, and operate profitably. The conference
will provide cost effective tips and best practices which will help attendees
navigate successfully in the highly competitive environment of today. The more you learn at NABD 2016 the more you
will earn in the future. Good luck!
The National Alliance of Buy Here, Pay
Here Dealers is the used car industry’s largest special interest group with
over 13,000 members. NABD is focused exclusively on the needs of the BHPH
industry, and is dedicated to improving the self-finance industry through
education, training, and by promoting the interests of operators nationwide.
Membership is obtained by attending an NABD training event, and members pay no
annual dues. More information about NABD is available online at
www.bhphinfo.com or by calling (832) 767-4759.