Jim Rhoads not only relocated to a new state; he also is rebranding his buy-here, pay-here consulting operation.
Late last year, Rhoads moved from Sherman, Texas to Sandy, Utah. Operating since 2005 as Four R Consulting, Rhoads announced that his new company has taken the name of BHPH Consulting.
“BHPH Consulting better represents who we are and what we do.” said Rhoads, who has served as a consultant, trainer and analyst with BHPH dealerships and subprime auto finance companies in 26 states and counting. “This is especially true now that we are expanding our services to include mergers and acquisitions and capital solutions for buy-here, pay-here.”
In recent months, Rhoads has started to facilitate the sale of established BHPH dealerships. Serving as a consultant and advisor, Rhoads is connecting buyers and sellers.
“Our experience in that segment allows us to advise dealers in valuation and strategies for a successful exit,” he said. “Plus, having been in buy-here, pay-here since ’97, my professional network is quite large. We know buyers and sellers and lenders and vendors — just about all of those most active in the industry.”
BHPH Consulting is also facilitating lines of credit and other financing services for BHPH dealers, including startups and those in the earliest stages of growth.
“A large part of my career has been in working with startups and helping entrepreneurs to develop a business plan as they enter BHPH,” Rhoads said. “I developed my own cash flow forecasting tool in 2005. We know as well as anyone that BHPH dealers need access to capital, especially in the first 24 months.
“As industry experts and analysts, we are now acting as a ‘watchdog’ in a management capacity on behalf of lenders or investors who wish to lend or invest in the subprime auto space,” he continued. “We monitor the lines of credit by tracking and reporting portfolio performance weekly. We also verify assets and prepare a weekly settlement report for all parties involved.
“Our management and oversight solution becomes an important way to link lenders and self-financed auto dealers,” Rhoads added. “The funding process I designed protects all involved in the most sensible way possible and allows dealers to gain access to growth capital in a space where money has traditionally been scarce.”
More details about his consulting services can be found at www.bhphconsulting.com.
Three years after leaving the investment banking world to form Braeger Financial Group with the objective of bringing individual accredited investors directly into auto finance, David Braeger recently rolled out his latest financing products to help buy-here, pay-here and independent dealerships secure more working capital.
Braeger is now offering short-term finance notes to dealers; notes that come in 15-, 20-, 30- and 40-month maturities while annually paying investors 8 percent, 9 percent and 10 percent, respectfully.
The company insisted this new short-term note program has been met with monstrous enthusiasm from dealers because of the simplicity and cost savings.
Braeger explained how the product works using the 15-month note as an example. Dealers pay 1/15th of the principal, plus interest, each month, which is then used to pay the investors. If dealers have a strong history of payment, they can ask for a credit increase at any time.
According to Braeger, “The traditional auto lenders are killing dealers with purchase fees, re-floor fees on flip, title time fees, curtailment fees and offset fees among others. Our system allows the dealers to become entrepreneurs again.
“If we decide to loan them money, they get it up front and pay us according to contract with none of these fees,” he continued. “The pressure is off the dealer to get the car off the lot or get hit with fees. Furthermore, the way many of the finance companies work, you can actually end up paying higher fees in months you turn cars more quickly.”
A Braeger client described his experiences using this product. Dusty Jackson is president and chief executive officer of AutoStart, an operation based in Kansas City, Mo., with 10 locations in Missouri, Kansas and Oklahoma.
“Traditional finance companies charge between 9 and 15 percent interest on financing, but once fees are factored in, the cost is most often three or more times that. Braeger has relieved that.” Jackson said.
“The biggest problem (Braeger) has in my opinion is the demand from the multi-billion dollar independent dealer market is so high for a program like his, even with the secure nature of the investors’ money, protected by the dealer’s inventory, I am not sure how he could ever raise capital fast enough,” Jackson continued.
Sherwood Neiss, co-founder of Crowdfund Capital Advisors, said when Braeger first launched his company that “It’s incredibly innovative. If hecan get it right, he will have more business than he can handle because there will be auto dealers coming to him for solutions who wouldn’t find them elsewhere.”
Now with this note program, Braeger is hopeful about how the company can help dealerships.
“We try and make things as simple as possible for the dealer, which benefits the consumer,” he said. “I have always tried to make the auto finance experience enjoyable for the dealer down to the consumer and that is what has made all parties including investors so happy.”
For more information, visit www.braegerfinancial.com or call (262) 385-5914.
As the year closes, it is time to look forward and plan for next year. Recent performance data for the subprime auto finance market indicates that better days are ahead for independent buy-here, pay-here operators who can capitalize on the opportunities.
Recent data from Experian Automotive indicates that through the third quarter of 2016, “installment finance contracts with deep-subprime consumers dropped 2.8 percent to the lowest level on record since 2011. Looking specifically at used-vehicle financing, analysts noted that the subprime auto finance sectors saw an even larger decrease. Financing for consumers with deep-subprime credit dropped by 5.3 percent to 5.11 percent; the lowest Experian has seen on record since 2007.”
This market change with deep-subprime customers (who prior to 2014 purchased BHPH vehicles from independent operators) subsequently bought and financed them from franchised dealers, independent finance companies and credit unions. The recent market change now allows independent operators to regain that lost market share.
The third quarter Experian report shows that lenders reduced loans to subprime and deep-subprime risk tiers while increasing loans to consumers with better credit. Although the credit unions continue to aggressively grow market share, the other competitors have tightened underwriting standards and are focusing on consumers with better credit scores.
Independent operators can benefit from the aforementioned market change by regaining market share lost during the last three years if they are positioned to do so. Here are the important things they will need to prosper in 2017 and beyond:
1. Capital availability to fund future growth.
2. A proper business model to “keep the new deals sold” over the life of the installment contracts.
3. They must rebuild their “bond” with previously lost customers and use the web and social media to find new ones.
4. Participate in dealer education to avoid underwriting and collection mistakes that reduce profitability and create costly compliance problems.
5. Carry inventory that provides affordable transportation to credit impaired customers on reasonable terms.
Here are the best ways to get the items needed to succeed:
1. Capital to fund portfolio growth should come from collections, equity or from borrowings under lines of credit or by selling previously originated contracts. Dependence on borrowed capital or by liquidating existing portfolios reduces an operator’s financial flexibility and should not be relied upon. “Keeping contracts sold” and collecting payments is more important than just increasing originations.
2. The best way to evaluate your existing business model is to study past bad debt losses. This analysis requires you to look “under the hood” of your portfolio at year-end when all charge-offs have been recorded. To understand what performance metrics are needed and ways to utilize this information to make better underwriting decisions visit www.subanalytics.com and watch two free videos on the home page of this website.
3. The best way to rebuild customer relationships is to contact past customers via mobile, web and social media technology. You may find that those customers are unable to afford the vehicles sold to them by your competition and are seeking more affordable transportation.
4. Dealer education is needed to become familiar with market and regulatory changes and to avoid making compliance mistakes. At the NABD National BHPH Conference on May 23-25 at Encore in Las Vegas the program will focus on “the changing world of BHPH” and the best ways to meet new challenges. Legal and regulatory updates will also be included in the conference agenda. The more you learn, the more you will earn.
5. Efficient systems are needed to grow portfolio profitability. During the last three years, many independent operators reduced overhead due to reduced sales. Instead of restoring these previous overhead levels, implementing new and improved technology for underwriting, collections and inventory sourcing is a better alternative. Operators can see and evaluate the new technology at upcoming educational conferences.
6. Sourcing, acquiring and reconditioning good inventory has always been challenging. However, the aforementioned market changes has reduced competition, increased supply, and caused wholesale prices to decline. New technology is available to broaden inventory sourcing options and increased repossessions enhance availability.
Independent operators cannot regain lost market share immediately. BHPH portfolios are best built over time and not overnight! In the New Year, operators are encouraged to benefit from competitor’s underwriting mistakes, not repeat them. Good luck.
Ken Shilson is president of Subprime Analytics (www.subanalytics.com) and the National Alliance of Buy-Here, Pay-Here Dealers (www.bhphinfo.com). Subprime Analytics uses data mining to perform computerized portfolio analysis for operators and capital providers. NABD is the nation’s largest BHPH special interest group for operators and product providers with more than 13,000 members. NABD will host a National BHPH conference on May 23-25 at Encore in Las Vegas. For more information call (832) 767-4759 or visit www.bhphinfo.com. He also can be reached at [email protected].
BHPH Report and NCM Associates are set to join a free webinar hosted by Dealer Profit Pros that’s meant to give buy-here, pay-here dealers constructive information to form strategy for 2017 and beyond.
The session is scheduled for 1 p.m. ET (10 a.m. PT) on Thursday.
“For the last several years we’ve made predictions and revealed new opportunities for dealers to meet or exceed their goals for the upcoming year. Each year dealers have offered great feedback on the information provided,” said webinar host Kenny Atcheson, who is founder of Dealer Profit Pros; a Las Vegas-based company that facilitates dealer marketing programs and more.
“This year will bring bigger changes than ever in part because of a new administration, starting with the president,” Atcheson continued.
Topics will range from how to improve underwriting and collections as well as other parts of your operation along with an update on what’s happening at the Consumer Financial Protection Bureau.
Space is limited for this webinar. Dealers can complete registration for this event by going to this website.
As another year closes, buy-here, pay-here operators must focus on how to make next year better. The answers can’t be found in their year-end financial statements or even by reviewing unit sales numbers.
This article will discuss what every operator should evaluate in order to improve performance and profitability as follows:
1. Indicators that your installment contracts portfolio needs a tune-up.
2. Proactive ways to improve portfolio performance by using metrics as your guide.
3. The proper accounting for bad debt losses and why charging off those losses should not be deferred.
4. Is your business model designed for success or failure?
5. What you can learn from your losses so you do not repeat them!
Here are some indicators that your installment portfolio needs a tune-up:
1. Your receivables are increasing but your collections are decreasing.
2. You are selling more vehicles but your portfolio is not growing at the same rate.
3. Your bad debt losses are increasing and you don’t know why!
4. Your portfolio is more than 50 percent liquidated and you aren’t replacing the “run off” with new originations.
5. Your portfolio performance is worse than the NABD industry benchmarks, which are available at www.subanalytics.com.
Hoping that next year will get better is not a prudent strategy. Waiting for the competition to decline or disappear isn’t the answer either. You must take a proactive approach to improving your internal portfolio performance and not depend on the competition declining.
The first step is to develop portfolio metrics: static pool, loss/liquidation, and default rates which are needed so you can compare your performance with your peers and identify performance trends. Here is what you can learn from the aforementioned metric calculations:
• Net Static Pool Rates – measures the frequency and severity of your bad debt losses after recoveries (in dollars) over the life of pools of installment receivables. (This is your performance report card!)
• Net Loss/Liquidation Rates – measures the pace of losses in your portfolio (after recoveries) in dollars before pools of receivables are fully amortized. This measurement is important for projecting cash flow, anticipating future losses, and in identifying changing trends.
• Default Rates – measures the frequency of bad debt losses in units (not dollars) over the life of your installment portfolio. This metric is used to measure volatility and portfolio quality.
If you don’t have these metrics your access to capital to fund portfolio growth will be severely limited. Capital providers use the aforementioned metrics to evaluate credit risk and to project loan repayment. You can’t expect to borrow millions of dollars without these portfolio barometers.
The next step is to charge-off your bad debts when losses become known. Bad debts in BHPH are not like wine; they don’t get better with age. When customers become delinquent 60 to 90 days their ability to “catch up” is unlikely. It is important that delinquent debt be charged off when it is identified so that losses can be mitigated and the appropriate collection action can be taken. If a charged-off account is subsequently collected the recovery should be recorded when received. A timely and consistent charge-off policy provides a realistic picture of your portfolio performance and helps you avoid financial surprises. These bad debt charge-offs are deductible for federal tax purposes so your corresponding tax liability is reduced.
Your business model dictates your BHPH success. You must evaluate your business model periodically for cash efficiency. That means determining the cash return (ROI) on your portfolio investment. You would not make other investments without first considering their ROI and the same holds true for building a BHPH portfolio. These calculations require the use of static pool and loss/liquidation metrics needed to project future cash flow, after bad debts and recoveries. Such projections are used to identify capital needs and predict future financial performance.
A new Credit Loss Measurement Standard passed by the AICPA in June will require you to reserve for future bad debt losses. You must determine how this new standard will affect your loan covenants and borrowing relationship as soon as possible. Metrics are needed to estimate future losses and to adjust your reserve for bad debts in your financial statements.
Those who do not make portfolio adjustments periodically cannot expect better results. The BHPH industry must regain market share by learning from their bad debt losses and not repeating them. Do not enter another year without “looking under the hood” of your own portfolio! The more you learn, the more you will earn! Good Luck!
Ken Shilson is president of Subprime Analytics, which uses data mining to perform computerized portfolio analysis for operators and capital providers to the subprime auto industry. For further information visit www.subanalytics.com or by calling (832) 767-4759.
There is still time for buy-here, pay-here operators — especially ones who can easily travel to Dallas — to register for the training sessions the National Independent Automobile Dealers Association is organizing for its first BHPH Summit.
The event is set for next Tuesday, Wednesday and Thursday at the Embassy Suites DFW Airport North.
“It’s yet another addition to an NIADA toolbox that continues to expand our level of service to the BHPH industry,” NIADA chief executive officer Steve Jordan said.
Here are some of the agenda highlights of the summit that’s being led by NIADA director of dealer 20 groups Chuck Bonanno as well as the association’s two other 20 group moderators and training consultants — David Brotherton and Mark Dubois:
— 2017 industry trends and opportunities
— Credit reporting
— Remote payment options
— Underwriting in a competitive environment
— Collections best practices
— Network monitoring and cyber security
— Lead management basics
— Future of GPS and starter interrupt technology
Some of the other experts scheduled to be part of the summit include Susan Perlmutter of Sigma Payment Solutions, Steve Levine of Ignite Consulting Partners, Lawrence Pappalardo of Equifax, Robert Wilson of DealerSocket and Bill Neyland of TaxMax.
The association is also assembling a collection of capital providers who will provide their insights into the capital situation facing many of today’s dealers.
NIADA senior vice president of legal and government affairs Shaun Petersen also is on tap to share a regulatory update to summit attendees, as well.
The summit begins with a special welcome reception hosted by Kevin Carr, who is the vice president of financial services at PassTime GPS.
“The entire dealership staff can take something valuable back from this event, and we’re encouraging dealers to bring their managers, salespeople, service staff and collectors by offering discounts for dealerships that bring multiple attendees,” Jordan said.
“While the scope of this event is large, the idea behind it is simple,” he continued. “We want to help every BHPH dealer become stronger, more efficient, more compliant and more profitable. We want to give them the latest information, the best tools and the brightest ideas to make that happen.”
More details about the event can be seen in the video at the top of this page or by going here.
Operators can complete registration for the NIADA’s BHPH Summit by going to this website.
Buy-here, pay-here operators who need recommendations on improving deal jacket compliance, securing more money from customers’ tax refunds and details of a significant accounting change — and who want all of this information for a discounted price — need to take action before the end of the week.
The National Alliance of Buy-Here, Pay-Here Dealers said early bird discounts on registration and hotel accommodations for its fall conference where experts plan to share best practices about those topics and more will expire on Friday.
Operators can save hundreds of dollars depending on how many attendees from their store come to the BHPH Conference to be held Nov. 1-3 at the Rosen Shingle Creek Resort in Orlando, Fla. Special room rates of $199 per night expire at the close of the week, too.
The program includes several of the nation’s leading attorneys, experts and successful operators who will share their tips and techniques to help attendees succeed in a highly competitive subprime market. The conference opens with a first-time attendee reception at 2 p.m. ET on Nov. 1.
The dual-track workshop, scheduled on the opening afternoon and then the following morning, will feature sessions that showcase new technology, including the latest dealer management software releases, the latest payment device technology and other products and services that increase profits through operating efficiency.
The compliance tracks will include vendor management responsibilities, add-on product compliance and becoming deal documentation compliant.
An accounting and tax "new developments" workshop will discuss new accounting credit loss measurement requirements, which will significantly impact all BHPH operators who carry finance receivables.
Other sessions include lease-here, pay-here as an alternative business model, Internet and social media tips to gain market share, capital solutions and ways to maximize recoveries.
“These workshops will not be infomercials, and will contain important information for operators to compete successfully today,” NABD president and founder Ken Shilson said.
During the second half of the conference, the dual tracks combine into general education sessions featuring a keynote presentation by Harris Rosen, who built a hotel empire with minimal start-up capital. Other general sessions will cover:
—Current developments update discussion
—Benchmarks and trends update
—Improving customer communications and relationships
—Operating best practices for challenging times
—Compliance issues
—Ways to protect your operation
—Avoiding collection mistakes
The exhibit hall will include all the newest products and services that increase profits and cash flow. The receptions, as well as breakfast and a luncheon with the exhibitors, are designed to allow attendees to network with other operators, experts and exhibitors.
The Rosen Shingle Creek Resort is located near Universal Drive and many of the newest attractions. Shuttle service is available to Disney properties and to Universal Studios.
To register, call NABD at (832) 767-4759 or go online to www.bhphinfo.com.
Ken Shilson called it one of the “most significant accounting changes buy-here, pay-here operators will ever encounter.” The founder of the National Alliance of Buy-Here, Pay-Here Dealers referenced how the American Institute of Certified Public Accountants passed new credit loss measurement standards that require operators to estimate future anticipated losses on their receivables.
In light of how this is going to impact operators — especially ones who have a related finance company — Shilson is hosting a free, one-hour webinar so BHPH dealers can be armed with more information to create a strategy with their accounting professionals.
During the session set for 3 p.m. ET on Wednesday, Shilson plans to:
• Explain the change in the required financial statement loss reserve.
• Tell operators how this will impact their financial statements, loan covenants and income tax returns.
• Discuss the best ways to minimize the impact of this change.
• Explain how the new requirements will likely affect borrowing relationships.
• Advise on what operators should do now.
“Don’t get surprised. Get updated on this important development,” said Shilson, who also discussed the topic in an online video available here and at the top of this page.
After registering, operators will receive a confirmation email containing information about joining the webinar.
Registration for the session can be completed here.
This accounting topic is also on tap to be discussed in more detail when NABD hosts its upcoming BHPH Conference during the first days of November.
The conference, whose theme is “Best Practices to Succeed Now,” is designed for both new and experienced operators. The event marks the 13th annual fall conference hosted by NABD.
The conference — to be held Nov. 1-3 at the Rosen Shingle Creek Resort in Orlando, Fla. — features dual-track workshop sessions that will focus on best operating practices, compliance, technology and new developments that operators must learn in order to succeed in today's highly competitive subprime auto finance market.
The program includes several of the nation’s leading attorneys, experts and successful operators who will share their tips and techniques to help attendees succeed in a highly competitive subprime market.
A conference agenda and speaker information is posted and will be updated on the NABD website at www.bhphinfo.com. Attendees and exhibitors are encouraged to register soon while space is still available.
“Successful BHPH operators today must understand and adapt to the competitive subprime market environment. The old ways aren’t working anymore,” Shilson said.
“This conference will definitely help operators compete more successfully while avoiding legal and regulatory pitfalls that can cost them millions,” he added.
Advanced Lending & Portfolio Services (ALPS), a division of Westlake Financial Services, announced the acquisition of a $5.9 million bulk auto-loan portfolio from a financial institution in Tyler, Texas.
Officials highlighted the portfolio consists of more than 750 contracts from two buy-here, pay-here dealerships located in Houston. The average balance per contract computed to be nearly $7,900.
“We realized this was a unique opportunity for ALPS, as most lenders are not capable of accommodating the unique requirements of both the bank and the dealership,” said Todd Laruffa, assistant vice president and division head of ALPS.
“After understanding the end goals of both parties, we were pleased to accommodate the needs of everyone and complete a successful transaction for all involved,” Laruffa continued.
“We help dealers and lenders with liquidating assets in a quick and efficient manner; our entire closing process usually takes between two to three weeks to finalize a deal this size,” he went on to say.
Laruffa maintained that Westlake ALPS thrives on these types of unique opportunities and its ability to customize purchases to meet any seller’s current situation provides a strategic advantage.
“When dealers work with ALPS, we offer them liquidity while providing their customers with exceptional service,” said Ian Anderson, group president of Westlake Financial Services who also will be part of the collection of executives on hand for the SubPrime Forum during Used Car Week at the Red Rock Resort and Casino in Las Vegas on Nov. 14-18.
“The Westlake ALPS team reached another milestone with this large acquisition and we significantly expanded our business while providing advantageous solutions to both the bank and dealership involved in the transaction,” Anderson went on to say.
Dealerships, brokers and finance companies interested in learning more about Westlake’s ALPS can contact the company directly at (888) 937-2577.
Geared toward operators who are looking to close 2016 strong, the National Alliance of Buy-Here, Pay-Here Dealers released details of its upcoming BHPH Conference set for the first days of November.
The conference, whose theme is “Best Practices to Succeed Now,” is designed for both new and experienced operators. The event marks the 13th annual fall conference hosted by NABD, which is the largest used-vehicle special interest group for BHPH operators with more than 13,000 members.
The conference — to be held Nov. 1-3 at the Rosen Shingle Creek Resort in Orlando, Fla. — features dual-track workshop sessions that will focus on best operating practices, compliance, technology and new developments that operators must learn in order to succeed in today's highly competitive subprime auto finance market.
The program includes several of the nation’s leading attorneys, experts and successful operators who will share their tips and techniques to help attendees succeed in a highly competitive subprime market. The conference opens with a first-time attendee reception at 2 p.m. ET on Nov. 1.
The dual-track workshop, scheduled on the opening afternoon and then the following morning, will feature sessions that showcase new technology, including the latest dealer management software releases, the latest payment device technology and other products and services that increase profits through operating efficiency.
The compliance tracks will include vendor management responsibilities, add-on product compliance and becoming deal documentation compliant.
An accounting and tax "new developments" workshop will discuss new accounting credit loss measurement requirements, which will significantly impact all BHPH operators who carry finance receivables.
Other sessions include lease-here, pay-here as an alternative business model, Internet and social media tips to gain market share, capital solutions and ways to maximize recoveries.
“These workshops will not be infomercials, and will contain important information for operators to compete successfully today,” NABD president and founder Ken Shilson said.
During the second half of the conference, the dual tracks combine into general education sessions featuring a keynote presentation by Harris Rosen, who built a hotel empire with minimal start-up capital. Other general sessions will cover:
—Current developments update discussion
—Benchmarks and trends update
—Improving customer communications and relationships
—Operating best practices for challenging times
—Compliance issues
—Ways to protect your operation
—Avoiding collection mistakes
The exhibit hall will include all the newest products and services that increase profits and cash flow. The receptions, as well as breakfast and a luncheon with the exhibitors, are designed to allow attendees to network with other operators, experts and exhibitors.
Companies interested in exhibiting may call (832) 767-4759 while space is still available.
The Rosen Shingle Creek Resort is one of Orlando’s finest and is located near Universal Drive and many of the newest attractions. Shuttle service is available to Disney properties and to Universal Studios.
“The Rosen Shingle Creek and Orlando is a very attractive and affordable venue,” Shilson said.
Attendees are encouraged to bring their families and enjoy one of the nation’s most popular destinations. NABD has arranged discounted room rates with no resort fees in an effort to make it affordable for everyone. Early registration and member discounts are available, while supplies last, by calling NABD at (832) 767-4759 or going online to www.bhphinfo.com.
A conference agenda and speaker information is posted and will be updated on the NABD website at www.bhphinfo.com. Attendees and exhibitors are encouraged to register soon while space is still available.
“Successful BHPH operators today must understand and adapt to the competitive subprime market environment. The old ways aren’t working anymore,” Shilson said.
“This conference will definitely help operators compete more successfully while avoiding legal and regulatory pitfalls that can cost them millions,” he added.
