HOUSTON — New developments in the buy-here, pay-here
industry are happening at an unprecedented pace, and new operators are entering
the business in record numbers. Both new entrants and experienced operators are
seeking exceptional profit opportunities in the low yielding economic
environments of today.

Caution — the old ways aren't working like they used to, and
operators need to understand all the new developments, how to capitalize on the
profit opportunities, and avoid the fatal pitfalls to prosper in BHPH today.

To succeed BHPH operators need:

—Capital
—Access to the right vehicles
—Technology and efficient systems
—Trained personnel who execute effectively
—Knowledge of the rules and regulations (both federal and state)
—A cash-efficient business model that maximizes return on investment
—Prudent financial management that monitors performance

After reviewing the list above you may conclude that nothing
is really new? Take a closer look:

—Capital: The capital markets are opening and money is more
readily available for good operators who have experienced management, efficient
systems, and portfolio performance metrics. More sophistication is expected
when borrowing money today. The contract purchase market is extremely
competitive and operators today should carefully consider whether to hold their
contracts or sell them off at favorable prices. Therefore, portfolio metrics,
static pool, loss/liquidation and default rate analysis is needed to make the
right decisions.

—Technology: New technology is changing the way BHPH
business is being done. Electronic payment processing allows customers to pay
from anywhere. Payment device technology enables you to find and maximize
recoveries when customers don't pay. Social media is the best new way to build
a bond with your customers and texting is replacing emails. Wow!

—Personnel: It takes more skill and knowledge to prosper
than even before. This knowledge requires specialized training and monitoring.
"Inspect what you expect." Experienced personnel must be trained and developed,
not recruited. In the future the industry must find new ways to attract young,
talented professionals with technology skills.

—Vehicles: The supply chain has shortened and become highly
competitive and expensive. New car trades may improve supply during the next
few years, but not overnight. Operators today need to carry a broader mix of
inventory to meet customer needs (and budgets). Technology is needed to broaden
sourcing and identify new procurement opportunities!

—Compliance: The rules and regulations at both the state and
federal levels are increasing in volume and complexity. Operators should
establish a compliance department which is directed by a chief compliance
officer. An outside team of professionals, including a competent, knowledgeable
attorney, a CPA and a banker are now needed more than ever.

—Business models: With capital becoming more expensive and
vehicle acquisition costs rising faster than customer down payments and repayments,
a more cash efficient business model is needed. While various BHPH business
models can be profitable operators must consider ROI in selecting the best one.
Calculating ROI requires an estimate of future losses. Loss estimates must be
based upon portfolio metrics and loss curves. More analytical skill and
sophistication is needed to project losses and capital requirements.

—Financial management/monitoring: Trial-and-error mistakes
are very expensive and must be avoided. Operators must learn from their losses,
not repeat them. Expenditures must be carefully scrutinized by competent
financial professionals who monitor performance and recommend changes to
maximize profitability and cash flow.

Operators who recognize and implement the strategy above will
prosper today and in the future while competitors who don't fail. At our
upcoming East Coast NABD BHPH Conference in Atlanta on Oct. 21-23, we will
focus in depth on each of these items above.

Visit www.bhphinfo.com for more information or call (832) 767-4759.

Ken Shilson CPA, is the founder of the National Alliance of Buy-Here, Pay-Here
Dealers (NABD). Shilson is also the president of Subprime Analytics (www.subanalytics.com),
which performs electronic portfolio analysis and due diligence services
for financial institutions which provide capital to the subprime
automotive industry.