The growing appeal of Canada’s in-house financing movement
Buy-here, pay-here. In-house financing. Whatever you want to call it, the uptake of this business model in the Canadian automotive market has been nowhere near as prolific as it has in its neighboring country to the south. But the adoption of BHPH providers appears to be increasing.
We at Auto Remarketing Canada, whose sister publications delve into the U.S. BHPH market quite a bit, were curious about the current condition of the in-house financing and leasing market in Canada. So we reached out to Mark Dubois, the president of Dealer Performance and Consulting, to get his unique view on the situation.
Dubois, a Canadian citizen that started his own BHPH business in the U.S. before going into consulting, amongst many other endeavors, organizes an up-and-coming Performance Group for in-house finance providers in Canada, with representation in several of Canada’s southernmost provinces. At the time of our interview, the group had 9 dealer members spread throughout Ontario, Manitoba, Saskatchewan and Alberta, with a potential new member joining from Quebec.
Even though there are a few dealers who have offered in-house financing in Canada for decades, there aren’t nearly as many as there could be. We asked Dubois why he thinks this is the case, and he says it has nothing to do with a lack of demand from buyers.
“The biggest difference between dealers in the U.S. and dealers in Canada, from what I’ve seen, is that dealers in Canada tend to be a lot more risk averse,” he said.
Although it’s true that the in-house financing market does lend itself to higher financial risks, so too are the potential rewards.
“More and more dealers are realizing the profit potential of in-house financing,” Dubois said. “The other thing is the opportunity to reach a market that currently isn’t being well served.”
This market, according to Dubois, includes the host of Canadians that don’t fall into a “box” of certain financial parameters that many financial institutions require as conditions for lending. Some of them have damaged credit. Some of them have none at all. Many have experienced job loss, business failure, divorce, or are recent immigrants to the country.
“In many cases they make decent money,” he said. “But they can’t get traditional financing because they don’t qualify. So where do they go? What do they do?”
Where many institutions see a risk not worth taking, Dubois sees in-house financing as an opportunity for mutual gain.
“You can put more emphasis on the person’s future and not their past,” he said. “Their ability to pay and their stability is more important than just using their credit score.”
Dwayne Middlebrook, of Saskatoon Automotive Group Acceptance and member of the Performance Group, has been working in the BHPH business for the past 20 years, focusing on both the lending and collections portion of operations. While he acknowledges that the point of the business is to make money, it is nice to help people who don’t have any other options.
“Of course you have to be profitable in any business, but when you help a customer who is struggling to get credit for a vehicle and has been declined everywhere else – keep in mind that most people don’t choose to have bad credit, their credit situation could be a result of the market, family illness, divorce or 10 other things that is not in their control – just by helping these people get re-established creates a whole new buyer/seller experience,” Middlebrook said.
Dubois has also begun to notice that Canadian franchises, who Middlebrook says have historically been hesitant to provide in-house financing, are increasingly doing just that.
“What franchise dealers have learned is, especially if they have multiple locations, by pooling older, higher-mileage vehicles from their multiple locations, they create an inventory for in-house financing,” Dubois said. “These vehicles would otherwise be sent to auction and sold for little to no profit. By reconditioning vehicles effectively, putting them out on loan through an in-house financing or in-house leasing program, it can be very profitable.”
Auto Remarketing Canada asked Dubois how long it typically takes the average Canadian dealer who takes on in-house financing to get comfortable with the new responsibilities.
“That ranges from instantly to a year,” he said. “Instantly is based on the actual business tolerance for risk. Some dealers are very risk averse so they don’t want to take customers that maybe have a credit score below a 500 or whatever. And so they tip-toe into the business and say, ‘So let’s just make sure nobody defaults.’ Well, that’s not very realistic.”
Middlebrook shared what he sees as a key mindset obstacle for dealerships considering BHPH.
“Most people at a dealership are trained to sell cars and not collect money so until they get the right person there is always hesitation in that,” he said. “The BHPH business is about collections to me and not about selling cars.”
“The biggest challenge in starting BHPH is figuring out your business model, or where you fit into the market,” Middlebrook said. “Our BHPH model is to help people who have been turned down in the past get into (a) quality pre-owned vehicle, as well as help them re-establish credit so in the future they can have the credit they deserve.”
And figuring out how to establish a business model is where folks like Dubois come in. From his point of view, the interest for the in-house financing business is there – the only things lacking are the tools to learn and understand how to do business properly.
Dubois’ Performance Group in Canada, otherwise known as a 20 Group, offers the following for its members, who are non-competing dealers looking to share business practices and help each other grow: monthly webinars, monthly composites with consolidated numbers for all members of the group, and two in-person meetings per year.
“It really is a great learning opportunity whether you’re new to the business or you’ve been in the business for a while and you’re just looking to get different input, new input, and discuss specific challenges,” Dubois said.
For more information, visit the Dealer Performance and Consulting site here.