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2016-02-24 Navigating the Road to BHPH Success!

By: Kenneth Shilson

President, NABD


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 financial flexibility.

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 the 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 or by calling (832) 767-4759.