Leading into the 18th annual National Conference for BHPH hosted by the National Alliance of Buy- Here, Pay-Here Dealers, we spoke with Ken Shilson, the president and founder of NABD, about a host of issues impacting operators.
BHPH Report asked Shilson about the diminishing market presence BHPH dealers possess nowadays, how moves made by investment leaders on Wall Street are impacting dealers on Main Street, as well as some tidbits that dealerships can leverage during the second half of the year.
How are BHPH operators surviving the storm from subprime finance companies that seems to have been going on for several years now?
Based on numbers that Experian has provided through December 2015, it appears that buy-here, pay-here has lost about 40 percent of its market share to subprime finance companies, credit unions and franchised dealers. That’s a pretty big slice out of the market, and therefore it has to result in some adjustments. One of the big adjustments is in order to survive today you have to have financial flexibility and capital availability. You have to get your financial house in order to be able to weather the Storm, so to speak, where all this competition is going on. If you to sell a car today to pay the bills tomorrow you’re in deep trouble because it’s going to take time for us to regain our market share. It’s not going to come back automatically.
You must have a compliance focus today. That’s because in the past the industry has not been scrutinized the way it is now. You cannot ignore that big brother is looking. You can’t ignore it. Whether you’re big or small, or in between, you better get your compliance management system in place.
You have to have consistent underwriting. Trying to match what Wall Street is doing, what franchised dealers are doing and what credit unions have done is not smart. What is smart is to keep a consistent underwriting approach and follow your business model. I have a saying: Never match underwriting with stupidity. If you try to do it, you’ll end up with disastrous results. You need to be consistent and disciplined in your underwriting.
You need to get efficient by embracing technology. With the loss in market share, you have to reduce your costs. You have to operate more efficiently in order to operate more profitably. In other words, you need to be able to do more with less. Th e good news is that once the industry rebounds you’ll make that much more money because you’ve already streamlined things to be more profitable.
No need for specific numbers, but what’s your assessment as to how many good operators have departed the business in the last couple of years? What void is it leaving?
I think that’s a great question and no one has asked me that question before. It’s a very valid question. My answer is none. No good operators have left the business because good operators understand that it’s a marathon, not a 100- yard dash. They’re prepared to stay the course. Operators. What we’ve lost is people who were over-leveraged, who didn’t discipline themselves properly, who tried to match underwriting with stupidity, who didn’t get compliant, who didn’t do any of the things that I just said.
They continue to fail. They will continue to fail as long as they don’t have a long-term plan. I know these guys. I know who the good operators are, not based on subjectivity but based on performance. They’re all still there.
Both Fitch Ratings and Moody’s have shared reports this year about the deterioration of subprime auto ABS. What’s your reaction to the concern shown by Wall Street?
I have been tracking this for two years now. I talk with Wall Street people who are both investors and securitizers. I have said for the last year, maybe the last 18 months, that there are some deep subprime securitizations that were poorly put together and poorly structured. To that end, they are starting to fail. What I mean by that is the securitizers who had no experience in the underwriting or collection of this kind of paper, those who did not structure deals where they matched the right vehicle with the right customer, are failing and will continue to fail. Not all securitizations are bad. Th ere are many that are performing well. Those people who structured them right and those people who did do the right matching process, that paper continues to perform. But I think in the months ahead more of these poorly structured ABS transactions are going to surface. Th is is going to create an enormous opportunity for the buy-here, pay-here industry to get the customers and those vehicles back from the defaults that come out of these poorly structured deep subprime deals.
At the federal level, how informed — or misinformed — are regulators and lawmakers when it comes to how BHPH dealerships operate? What can be done to improve the situation?
There are some regulators that I would consider to be fairly well informed and others who are not. I don’t think it’s fair to generalize one way or the other. What I would say is the key To this is a continuing communication, which needs to exist between the industry leaders and the regulators to try to help more of them to have a clearer understanding of the importance of subprime auto finance industry in America today. How important of a source of transportation it is? Now at the end of the day as the leaders step up to do that — and I want to applaud NIADA’s efforts through their leadership conferences that NABD totally supports — it’s not going to be what NIADA does or what NABD does, it’s what the individual operators do. We’re going to be judged by their actions. If the industry is waiting for us to make all of the problems go away, that’s not going to happen. They’ve got to take compliance seriously. They’ve got to operate properly within regulatory constraints to do the right things or suffer the consequences.
The NABD is approaching 20 years of hosting the National Conference. What’s your assessment of the journey not only for the organization but for the BHPH industry during that span?
We want to thank the tremendous support from the many operators in the industry and other, our sponsors, people who are involved in the industry who have embraced and supported us over that journey. To them I say this: Buy-here, pay-here is a vital source of transportation in America. Without the buy-here, pay-here industry, millions and millions of Americans would not have any transportation at all and would have difficulty working and living. Buy-here, pay-here is a critical component of the American transportation system. Our consumers are car dependent.
Now NABD has championed the cause for the self-financed, buy-here, pay-here operators throughout its entire existence. We believe that the industry continues to need that type of representation. At the end of the day, we believe that the education and the training that we’re providing and offering have never been more important in this journey. The journey is not over. The journey continues.
What pearls of knowledge and wisdom would you like to leave with BHPH operators going into the second half of 2016?
I urge operators to stay the course, to get their capital and financial flexibility in order to continue in the highly competitive environment of today. I urge them to reconnect with their customers, which will help them regain market share. I urge them to take compliance very seriously and to get a compliance management system in place.
I would also say to them if they are not willing to get the education and training necessary to help them do those things, they need to expect the worst results. We’re at a time where you have to have more skill and more knowledge to navigate the course successfully than ever before. That cannot be attained by doing the same old things every day and expecting a different result.
With the discounted room block at the Wynn in Las Vegas set to expire on Sunday, Ken Shilson highlighted 10 reasons to attend the National Conference for BHPH hosted by the National Alliance of Buy-Here, Pay-Here Dealers.
Shilson, NABD’s president and founder, shared this list with BHPH Report on Thursday — less than three weeks before operators, accounting and legal experts as well as capital and service providers are set to gather during the 18th annual conference May 24-26. Without further ado, here are those 10 reasons Shilson pinpointed:
1. New regulatory developments they need to know.
2. Capital hour to find the funding they need.
3. Largest exhibit hall with all the latest products and services.
4. Several new sessions added this year.
5. The Wynn for $199 per night with no resort fees — an unprecedented discount.
6. First-timer reception with food and drinks.
7. Updated benchmarks/trend information.
8. Compliance moves to protect your operation now.
9. The only show exclusively for BHPH.
10. Best practices to regain market share.
More information about the conference — including the agenda, registration and links to discounted accommodations — is available at www.bhphinfo.com or by calling NABD at (832) 767-4759.
Shilson reiterated that NABD is a special industry group organized for the betterment of the BHPH industry nationwide, and has more than 13,000 members. Membership is obtained by attending NABD training and conferences, and members pay no annual dues.
“Our services are designed to complement and work with other automotive industry groups on matters pertaining to this segment of the automotive finance industry,” Shilson said.
Strategic Dealer Services (SDS) understands that since large amounts of buy-here, pay-here dealers’ capital are tied up in the sold vehicles out on the street, operators are continuously searching for new programs and products designed to help them manage the consistent money-in, money-out of day-to-day business.
SDS explained that it saw the need in the BHPH space for such products and developed the its Direct Advance and Bulk Purchasing programs to solve these specific cash-flow needs on an individual deal and large portfolio basis, respectively.
The SDS Direct Advance Program is a custom program designed for BHPH dealers wanting to obtain immediate cash flow on a deal-by-deal basis. SDS can reimburse the dealer for the upfront wholesale cost of purchasing the dealer’s inventory and can allow the dealer to select custom payback terms.
The company highlighted a list of program benefits that can keep cash flow free, including:
— SDS allows the dealer to underwrite each deal
— SDS allows the dealer to keep servicing at the dealership to maintain customer relationships
— SDS requires no daily or weekly reporting
— SDS has no signup fees
— SDS has no unused line fees
— SDS offers electronic funding system, wire or ACH
— SDS provides reduced fees on repos and resold units
— SDS has no corporate walls to breakthrough as all decisions are made in-house
— Dealers can speak to anyone at SDS as there is not an automated phone system
“Strong down payments, quick repos, flexible pick-up payments and other up-front cash across the table can help improve a dealer’s cash flow. However, over time, as units are sold, all dealers are forced to wait and rely on customer payments (whether they be weekly, bi-weekly, semi-monthly, or monthly) in order to recapture the invested capital and begin rebuilding cash reserves,” SDS officials said.
“The age-old problem is once a dealer has successfully sold inventory and built up a strong BHPH portfolio, the need to keep inventory up and/or expand on business operations still remains, while the capital needed to do so is slowly trickling back in from customer payments,” the company continued.
“SDS gives the BHPH dealer the opportunity to quickly access capital and maintain control of the customer relationship, deal servicing and payment collection from the in-house customer,” the company went on to say. “In other words, with an easy approval process and no dealer restrictions, immediate cash flow is provided with no strings attached.”
SDS is licensed to service dealers in 12 states:
— Texas
— Florida
— Ohio
— Georgia
— Missouri
— Mississippi
— Louisiana
— Oklahoma
— Tennessee
— South Carolina
— New Mexico
— Colorado
“By cutting the strings attached to other cash-flow solution products, SDS has delivered solutions for the BHPH dealer who is looking to successfully manage their day-to-day business without having to conform to someone else’s rules. This keeps the dealer in control of their operations and fosters rapid growth and increased profitability,” the company said.
“SDS operates with the purpose of acting as a trusted partner of all its dealers, and to assist them in their financial needs today, tomorrow and for years to come,” the company went on to say.
To learn more about the cash-flow solutions provided by SDS, visit sdealers.com or call (855) 573-3253.
Buy-here, pay-here dealership capital provider Ace Motor Acceptance Corp. recently announced the expansion of its footprint of where the company provides services. Ace Motor Acceptance now can work with operators in Texas and Mississippi.
After experiencing growth of more than 50 percent in 2015, AMAC decided the time was right to expand into these new states.
“AMAC views these new areas as having great potential and is committed to growing their dealer base in Texas and Mississippi,” the company said.
AMAC’s BHPH in a Box program can provide operators the capital to grow their BHPH business, including funding for receivables and floor plans to expand their inventory.
AMAC also can offer collection expertise to assist the dealer’s staff or to handle all of the collections for the dealer, either way the customer may still pay at the dealership.
Additional benefits of the program include insurance tracking, reports package and training.
The BHPH in a Box program is available in Alabama, Florida, Georgia, Kentucky, Mississippi, North Carolina, South Carolina, Tennessee, Texas and Virginia.
Dealers wanting more information can contact AMAC at (704) 882-7100, ext. 7509 or visit www.acemotoracceptance.com.
If operators have been putting off their plans to participate in a BHPH Boot Camp hosted by the National Alliance of Buy-Here, Pay-Here Dealers, they might miss their opportunity completely.
In a message to BHPH Report, NABD indicated its upcoming Boot Camp will be the final one the organization conducts. Limited space for operators still is available for the event that begins on Saturday.
The NABD Boot Camp is a two-day training session where attendees get the chance to see a dealership that’s been in business for more than 20 years in action. NABD co-founder Ingram Walters literally opens the doors to his back-end office where underwriting is completed, his reconditioning center and site of his related finance company for his operation, iCars, which is located just east of Charlotte, N.C.
NABD co-founder and president Ken Shilson also delves into a host of topics important to the success of BHPH dealers, including the establishment and monitoring of an RFC, what static pool analysis can reveal about a portfolio as well as what capital providers might be available.
The boot camp also provides ample time to interact with fellow attendees as well as the chance to sit down and have some one-on-one conversations with both Shilson and Walters.
To get more information, watch the above video, visit www.bhphinfo.com or call (832) 767-4759.
The National Alliance of Buy-Here, Pay-Here Dealers gathered feedback from nine attendees who came to its East Coast Conference last week in Orlando, Fla., that focused on best practices and compliance.
Perhaps one comment from an operator in Indiana summarized what NABD looks to accomplish with this latest event that “featured the greatest collection of legal talent in the 18-year history of NABD,” according to founder and president Ken Shilson.
“I always bring all my location managers with me to NABD conferences. After attending these sessions, they seem to better understand the importance and necessity of what we ask them to do on a daily basis,” said Jim Everett, who runs his BHPH business in Greenwood, Ind.
Attorneys Dave Bafumo, Trish Cacciola, Susan Chylik, Allen Denson, Mark Edelman, Tom Hudson, Eric Johnson, Terry O’Loughlin and Shaun Peterson explained and discussed the current legal and regulatory issues with attendees that impact the BHPH industry today.
“These legal experts really prepared attendees for all the important compliance challenges ahead,” Shilson said.
Attendees who attended the three-day event and completed the compliance sessions will receive a compliance certificate which evidences their participation.
Additionally, Hudson created a 12-step checklist to help attendees down the path to compliance after the conference.
The best operating practices sessions featured a panel presentation by John Neery of CARite, Terry Bowdler and George Klinke of LHPH as well as Hudson.
“These panelists did an outstanding job of explaining the pros and cons of this BHPH alternative business model,” Shilson said.
Other best practices sessions included:
— Web tips to regain market share
— Technology solutions
— A how-to on dealer advertising
— Accounting and tax update
— Tax refund tips
— An Autotrader presentation on its BHPH Finance Center
— Capital market alternative discussion groups
— Sourcing, financing and reconditioning inventory techniques
— A benchmarks/trends update
— Phone skill tips
— A current industry issues discussion
— A panel covering how regulatory issues may change BHPH
— An underwriting best practices panel.
“Attendee evaluations unanimously indicated that the conference sessions successfully met all their learning objectives,” Shilson said.
Emily Feathers of Powell, Wyo., supported Shilson's claim by saying, “I came to get a general education on current and relevant topics and thought the conference was very informative. All the speakers did a great job.”
Nick Hall from Lorain, Ohio, noted, “On compliance, the complaint issue was emphasized and it brought awareness to the importance of handling complaints efficiently and timely.”
Dave Rooker, also from Lorain, Ohio, added “I thought that there was really good coverage of many topics that I previously did not know much about.”
A sold out exhibit hall featured more than 60 exhibitors and sponsors who offered all the latest products and services to make attendees more efficient and profitable in the future. The exhibit hall included two receptions, coffees, and a breakfast that enabled attendees to network with industry experts, sponsors and others.
NABD announced that it will hold a Buy Here Pay Here Boot Camp on Jan. 9 and Jan. 10 at the iCars BHPH dealership owned by Ingram Walters in Charlotte, N.C., where attendees can “see and learn” through hands-on training. Shilson said space is limited, so operators are encouraged to call NABD headquarters at (832) 767-4759 while space remains available.
Special discounts to the Boot Camp are available for operators who attended the East Coast Conference.
NABD will also hold its 18th annual National Buy-Here, Pay-Here Conference at Wynn Hotel and Casino in Las Vegas on May 24-26.
For more information on these events, or to download conference presentations, visit www.bhphinfo.com.
The National Alliance of Buy-Here, Pay-Here Dealers is bringing together seven of the most experienced, knowledgeable legal experts who have several decades of collective experience in the auto regulatory world for the 12th annual NABD East Coast Conference.
The conference theme is “More Success, Less Risk,” and the event is designed for both new and experienced operators. Organizers insisted BHPH dealerships of all sizes will benefit from the conference’s compliance track dubbed Compliance University from the knowledge to be shared by:
— Tom Hudson of Hudson Cook
— Gerald Sachs of Paul Hastings
— Terry O’Loughlin of Reynolds and Reynolds
— David Bafumo of FNI Inc.
— Mark Edelman of McGlinchey Stafford
— Allen Denson of Hudson Cook
— Trisha Cacciola of Hudson Cook
And more legal experts are expected to join other conference panels, too.
”This is the only compliance training designed specifically for BHPH operators. This is the greatest assembly of legal talent at one NABD event that we have ever assembled,” NABD president and founder Ken Shilson said.
NABD East Coast Conference is scheduled for Nov. 3-5 at the Wyndham Orlando Resort International Drive in Orlando, Fla.
Beyond the segment labeled Compliance University, the conference features dual-track workshop sessions starting at 3 p.m. ET on Nov. 3, covering BHPH best operating practices and compliance. The program features many of the nation’s leading attorneys, experts and successful operators who will share their latest tips and insights that bring success in the highly competitive subprime auto finance market of today.
The conference also will open with a first-time attendee reception.
“The compliance workshops will also include affordable compliance solutions which will help operators avoid legal and regulatory mistakes that can cost millions of dollars,” said Shilson, who added that upon completion, all attendees will receive a compliance certificate that proves their participation.
The Best Operating Track includes sessions on:
— Website design and content
— Technology solutions
— Payment devices
— Marketing strategies to gain market share
— Inventory sourcing and reconditioning
— Capital
Shilson highlighted these sessions feature leading experts and operators who will share ideas that succeed in the current environment.
“The workshops will not be infomercials and will benefit both owners and all key employees,” he said.
During the second half of the conference, the dual tracks will combine into the general sessions covering:
— Lease-here, pay-here program
— Using new technology to finance and source inventory
— Collections
— Repossessions
— Payment device best practices
— New benchmarks and trends update
— Accounting /tax tips and update
— Regulatory developments forecast
— Underwriting tips
— Top take-away session
“Both the workshops and the general sessions feature new content never presented before, and important information that will help attendees succeed,” Shilson said.
The conference ends at 1 p.m. on Nov. 5 to facilitate travel.
The exhibit hall will include all the latest products and services that increase BHPH profits and cash flow. Two receptions, a breakfast and a luncheon are included that are designed to allow attendees to network with other operators, experts and exhibitors.
NABD highlighted the Wyndham Orlando Resort International Drive is newly renovated and located next to the hottest new attraction, the Orlando Eye. Shuttle service is available to Disney properties and Universal Studios. NABD has arranged discounted room rates of only $149 per night with no resort fees.
“Attendees are encouraged to bring their families to enjoy the nation’s most popular family destination — Orlando,” Shilson said.
“Successful BHPH operators today must understand and adapt to the changing market environment. The old ways aren’t working anymore,” he continued. “This conference will definitely help attendees compete more successfully while avoiding the new regulatory pitfalls. The Orlando destination is an attractive and affordable venue.”
The complete agenda and speaker information is posted and will be continually updated on the NABD website at www.bhphinfo.com. Registrations can be made at the website or by calling (832) 767-4759.
Space and room availability is limited and early registration discounts are expiring soon. Space and room availability is limited and early registration discounts are expiring soon.
Exhibitors can call Keith Shilson at (832) 767-4759 to learn more about space still available.
Mike Marak is the president of M&M Auto Sales in Hiawatha, Iowa, boasting more than three decades of buy-here, pay-here experience.
Marak chose to spend three days in Dallas last week for the Best Practices Conference hosted by the National Alliance of Buy-Here, Pay-Here Dealers. Judging by what he shared with NABD afterward, it seems to have been time and money well spent.
“Everything was great,” Marak said. “I did not hear one bad speaker. I learned something in every session, and I have been in the business 31 years.”
NABD highlighted that BHPH operators from throughout United States attended the three-day event, which wrapped up on Jan. 20. The dual-track program focused on best operating practices and compliance for BHPH.
And Marak wasn’t the only dealer who thought spending time away from the store to come and gather information on compliance, collections and underwriting was a prudent move.
“NABD is the leading voice and authority in our industry. There is no close second,” said Al Gardiner, owner of St. Mary’s Motors in Lexington Park, Md. “This show and other NABD contributions are an absolute must for dealers whose livelihood depends on the BHPH industry.”
Jack Bridges, chief operating officer of Credit Now Auto Co. and Atlantic Acceptance Corp., offered a similar assessment.
“Having attended virtually every one of (NABD’s) national conferences over the years, I came expecting to gather a wealth of information and that is exactly what the show delivered and so much more that it’s simply amazing,” Bridges said.
“(NABD’s) conferences are, simply stated, a must for anyone that is serious about learning, improving and growing their BHPH business,” he continued. “In fact, I would say a lot of Credit Now Auto Company’s success over these many years is due in a large part to what we have learned at (NABD's) shows, then brought home and put into practice.”
NABD founder and president Ken Shilson indicated the educational sessions featured 11 dual-track workshops on Sunday afternoon and Monday.
Compliance topics included legal and regulatory updates, handling regulatory investigations, compliance systems and an IRS update. The best operating practices sessions focused on areas such as the Internet, integrated technology solutions, add-ons, maximizing recoveries, performance benchmarks, inventory and reconditioning and capital alternatives.
On Tuesday morning, the workshop sessions combined into a single track, featuring both best operating and best collections panels and a presentation on the new AutoTrader.com Buy-Here, Pay-Here Center.
The best practices sessions featured many of the nation’s most successful operators and industry experts. The compliance program included leading attorneys Tom Hudson, Terry O’Loughlin, Patty Covington, Eric Johnson, David Silverman, Myles Stevenson, Gerald Sachs and other chief compliance officers.
“All the sessions were interactive so attendees could ask questions and get answers to their questions on how to become compliant, and ways to improve their profitability and cash flow, and regain market share,” Shilson said.
“These sessions helped attendees take a proactive approach toward making 2015 a better year,” he continued. “In the highly competitive environment of today, training like this has never been more important. Attendees left with many new ways to increase market share and to avoid legal and regulatory mistakes that could cost them millions.”
Joyce Caudill, vice president of Richwood Acceptance in Walton, Ky., insisted that Shilson and NABD “have their fingers on the pulse of the BHPH industry.”
Caudill emphasized how discussions about the Consumer Financial Protection Bureau taking a great interest in the BHPH space are some of the main takeaways she had from the event.
“As our industry continues to come under close scrutiny and tighter regulation, real-time information on what the CFPB and other regulators are doing, planning on doing and honing in on, is more important than ever,” Caudill said. “The legal experts on the panel were top notch, not afraid to answer the hard questions and get us all on the right path to compliance.
“The technology experts have listened and are treated our business as the real player it is for even more credit challenged customers than ever,” she continued. “Putting all the information in a friendly, exciting format, at one place makes dealer education easier than ever. I tell everyone I know in the business that these conferences are a ‘must do,’ except our competition.”
And dealers weren’t the only attendees who gained valuable experiences out of NABD’s latest event offering. Mike Downey is the vice president of sales and marketing at Auto Master Systems.
“It is obvious that NABD has a great understanding of the needs of today’s dealers by dedicating a conference to the important topics surrounding operation and compliance,” Downey said. “The quality of content offered, and their selection of highly qualified speakers makes attending this conference an easy decision for BHPH operators who want to improve their business.
“We’re proud to be a part of it and look forward to the next one,” Downey went on to say.
And Tax Refund Services and TaxMax founder Bill Neylan added, “The NABD show is a must for all buy-here, pay-here dealers, as well as any vendor in the industry who are looking to better their business.”
NABD announced it will hold its 17th annual National Conference on May 19 through May 21 at the Wynn Hotel Resort and Casino in Las Vegas.
“The Wynn is the finest, five-star, Las Vegas hotel and casino. NABD offers unprecedented room discounts with no resort fees while supplies last,” Shilson said.
In addition, NABD plans to hold a BHPH Boot Camp on Aug. 22 and 23 in Monroe, N.C.
For more information on these upcoming events, visit www.bhphinfo.com or call (832) 767-4759.
When Advantage Funding co-founder Ed Kaye makes a presentation to buy-here, pay-here dealers, he often begins with a list of seven questions for them to consider. Before going any further, Kaye recommends that operators stop finance companies from going any further unless they can explain their programs in a concise, understandable way.
“We believe that there’s a lot of misinformation to buy-here, pay-here dealers in the finance market,” Kaye said. “Dealers always come up to us and tell us that they didn’t realize what they were getting themselves into with one lender or another or they had no idea of what the implications were in establishing a relationship with certain lenders. They didn’t understand the fine print.
“These seven questions were kind of a theme that many of the dealers were bringing to us. We felt that if we could share this information with dealers, it would be helpful,” he continued.
While Kaye emphasized that all seven questions should be considered, he noted that the first one is most important.
“If the program that the lender is offering the dealer is very complicated — and most the dealers are very bright guys — but they can’t understand how they’re going to get paid or where the money goes in very simple terms, because the reality is here we’re not doing rocket science here, then they should question whether or not that’s the right lender for them,” Kaye said.
“They’ve got to completely understand what they’re getting themselves into,” he went on to say.
If a BHPH operator decided to proceed through the complete presentation Advantage Funding typically makes, Kaye shared what he usually does during those sessions — telling dealers why his company is different from many operations.
“Our business model at Advantage is always to go after the second tier of the market,” Kaye said. “We found that the prime top-tier targets, transactions in any of our asset classes, are the least profitable. The bottom tier may have the largest profit margin, but on a possibility standpoint, they don’t always perform and therefore there’s great risk.
“So we like to position ourselves in the market just under the top tier credit,” he continued. “Therefore, we know we can’t help the big franchise, 200-store, buy-here pay-here operators. They don’t need us. They have access to their own capital that’s probably cheaper than ours. Therefore, there’s not enough margin for us to attack that market.
“But there is a huge opportunity for us to establish a place in the second tier,” Kaye went on to say. “Those are usually your smaller mom and pop buy-here, pay-here operators with good credit and good track records, transparent financials. They have all of the indicators that they will continue to succeed.”
One of the most important part of the criteria to establish a relationship with Advantage Funding is for BHPH operators to be in business for at least three years. Kaye explained why the company shies away from dealerships that might be still considered “green peas” in the BHPH industry.
“It’s mandatory that they have prior experience. We are not able to fund any start up buy-here, pay-here operators. But we are very aggressive in funding established smaller companies. And when I say established, we just want a minimum of three years in business,” he said.
“If they’re in business for less than three years, and they don’t have a three-years story, we can’t help them.”
An example of an operation that took the capital available and expanded is Craig’s Auto and RV, which has three locations in northern Michigan. The operation opened its doors in 2004 with Magnum Finance as its related finance company specializing in working with deep subprime customers who have difficulty accessing credit.
Then in 2008, Magnum Finance experienced a credit pinch of its own following the retraction of the financial industry. The company’s lender exited the market, leaving Magnum to self-fund.
“We put as many new loans on as our cash flow allowed, and it’s typical to see about 24 percent of the loans we finance go bad,” Magnum chief finance officer Erin Wilson said. “We pay off our vehicles when we sell them, and our cash flow comes off that cash receivable. But if we’re unable to originate new loans faster than those loans are charging off, it’s very difficult.”
Despite that hardship, Magnum Finance persevered through the Great Recession, self-funding in an effort to continue serving customers. Even so, the company was unable to keep up with business demand.
“No one would lend to our industry,” Wilson said.
Then in September of last year, Magnum Finance principals Dennis and Ryan Craig met Kaye and fellow Advantage Funding principal Michael Kaplan.
“Dennis and Ryan told Ed and Michael our story,” Wilson said. “They told them how we’d navigated the recession and managed to keep current our financial obligations.”
Kaye and Kaplan told Magnum Finance executives they could help by providing per-vehicle funding. In exchange for loans fitting a specified target market, Advantage Funding would pay Magnum Finance the cost of each vehicle financed plus a warranty and service fee when applicable.
Now, more than one year later, Magnum Finance and Advantage Funding have a close working relationship.
“Advantage Funding has been wonderful,” Wilson said. “They provide quick turnaround and consistent, high-quality service. They look not just at financials, but at your overall picture. They’ll work with you to get past your own hardships, just as we do with others. They understand the business, with its ups and downs. They’ve helped us continue to successfully serve our customers and our community.”
While there are success stories such as Magnum Finance, Kaye cautioned that some BHPH operators might not be as fortunate, especially if they don’t understand the commitments and requirements coming from their finance company or they’re originating contracts with vehicle buyers who are prime candidates for default.
“There’s always going to be competition. The strong operators, even the smaller operators who are financially sound, stick their knitting and understand the business and their market, will survive when the big boys are chasing stupid deals,” Kaye said. “But you have to have the wherewithal to wait it out … that’s why we go after established dealers that are sound financially.
“As long as the good operators will choose their battles and choose their deals to write, stick to their criteria and do the things that keeps them out of trouble, they’ll do fine, and we’ll be able to continue to support their business and help grow it,” he continued. “Once dealers start to chase bad deals at low rates with thin margins in this market, it’s a recipe for disaster.”
7 Key Questions About What to Expect From Your Lender
1. Can you provide a simple yet complete understanding of the programs you offer?
2. How do you differ from other lenders in this space?
3. How much do you advance on each transaction or portfolio?
4. How long does funding take?
5. Are there any fees involved in the line approval process?
6. What is the average size of the existing portfolios you fund?
7. Do you fund both BHPH and LHPH?
Source: Advantage Funding
The largest contingent ever attended the most recent BHPH Boot Camp hosted by the National Alliance of Buy-Here, Pay-Here Dealers at the site of iCars, Ingram Walters’ dealership in Monroe, N.C.
A total of 27 attendees from 15 different dealerships from throughout the U.S. took the opportunity to examine all parts of the BHPH operation owned by Walters, who has been associated with NABD since its inception and has been running his own dealerships for more than 20 years near Charlotte.
Walters along with NABD founder Ken Shilson used the Boot Camp on Aug. 2 and 3 to outline every step that it takes to create a successful BHPH store, from establishing a related finance company, regulatory compliance, underwriting and collections to finding inventory that will turn quickly.
“This allowed attendees to attend classroom training and to receive in-the-field training at one of the nation’s best operations,” Shilson said.
The boot camp training covered all areas of BHPH operations including building a successful business model, acquiring and reconditioning vehicles, best underwriting and collection practices, financial management and monitoring, compliance, technology solutions, and maximizing recoveries.
All attendees received projection modeling software, a complete policies and procedures and human resources manual, and other resource materials including legal and compliance materials supplied by Hudson Cook, sample pay plans, a reconditioning plan and much more.
“For a very modest investment, attendees received invaluable training and resource materials which can help make them millions,” Shilson said. “The opportunity to see iCars, receive individual instruction and learn best practices provided a unique experience.
“It takes capital, technology and knowledge to prosper in BHPH today,” he continued. “The old ways of doing things don’t work like they used to because of increased competition and different industry economics. Operators must develop new ways to prosper, and incorporate capital and technology, along with sound operating practices, to remain competitive.
“This boot camp included participation from three leading technology providers: Auto Master Systems, PassTime and Spireon. In addition, Flock Specialty Finance helped attendees understand innovative new ways to capitalize their operations. The sessions ended with one-on-one meetings with attendees to develop a strategic action plan,” Shilson went on to say.
For operators who were unable to participate in the August session, the next boot camp is planned for Nov. 8 and 9 also at iCars.
NABD’s next major event will take place just after 2015 begins. Walters and Shilson will host a new gathering — the Best Operating Practices and Compliance Conference. It’s set to start just as tax season intensifies — Jan. 18 through 20 at the Hilton DFW Lakes Executive Conference Center in Dallas.
“We have moved our next event to January 2015 rather than holding it just prior to our National Conference (in May at Las Vegas) as we have in the past,” Shilson said. “This will minimize the length of time attendees must be away from their respective operations to gain this important training.”
NABD also announced it will hold its 17th annual National Conference at the Wynn Las Vegas on May 19 through 21.
Operators can gather more information and registration details by going to bhphinfo.com or calling NABD at (832) 767-4759.
