Enter The Buy Here Pay Here Industry With Minimal Headaches

March 2007, Auto Dealer Today - WebXclusive

by Jennifer Murphy Bloodworth - Also by this author

The life of the Buy Here Pay Here (BHPH) dealer is not an easy one, but it is a profitable one if standards are set within the business and everyone follows them.  The best results are often achieved by those with a very structured business model. In this business set policies and procedures are a requirement because inconsistent underwriting and collection procedures are detrimental to your success.

In the BHPH business the credit-challenged customer is your lifeblood.  Most customers who walk on your lot know their credit is less-than-perfect.  Some simply need transportation, while others want a vehicle and need a credit makeover.  Customers you might not look at twice on a franchise lot will be your best paying customers on a BHPH lot.  The majority of these customers are honest people that aren’t afraid to work hard. 

Getting Started:  Building a BHPH operation

When opening a lot, several things need to be considered.  Location, personnel, training, procedures, necessary forms, inventory, advertising and much more are on the to-do list.  If you’ve been around the BHPH block before, you can probably open an operation without too much assistance as long as you have a large quantity of cash for inventory.  But if you’re new to this profitable niche of the automotive industry, you might need a “business in a box” solution. CarBiz, based in Sarasota, Fla., offers dealers a BHPH business model that is about as close as it gets.  

Their Dealer Controlled Financing (DCF) business model provides all the necessary tools to start a BHPH operation from the ground up.  After attending training classes, almost any business-minded person with sufficient capital can open up a lot; no prior in-depth BHPH knowledge is required.  The capital required to start-up this program is just under $11,000 plus inventory cost.

After signing up for this service, dealers receive a turnkey start-up package that includes:

  • DCF license
  • A policies and procedures manual
  • Management System Plus software (designed specifically for BHPH operations)
  • An on-site visit from a consultant
  • Unlimited over-the-phone consulting
  • Unlimited attendance to manager training classes
  • Forms necessary to start a BHPH lot (more can be ordered as needed)
  • Two on-lot training manuals
  • A popcorn machine
  • A soda cooler

Once the start-up of your operation is complete, active DCF dealer status can be maintained for roughly $200 per month.  This status entitles a dealer to a monthly composite of operational data, continued over-the-phone consulting and the ability to continue attending ongoing training classes.



The Go-To Guide: A Thorough Policies and Procedures Manual

In any BHPH operation, set practices must be in place for consistency and accountability.  A written manual that outlines all policies and procedures is the key to success (and fewer headaches).  A complete policy and procedures manual should cover inventory, sales, operations, and collections.

Jeff Shafer, vice president of Afford-A-Car, testified to the completeness of the DCF policy manual, “The thoroughness of the policy and procedural manual is unprecedented… It’s written very simple, so basically all you’ve got to do is be able to read and you can run a store.” 

Al Jenkins, general manager of Instant Auto Credit, has used this program since 1993 and believes the policies and procedures manual should be followed just as it’s written.  According to him, “If you try to stray from the basics, that’s when you normally run into problems… Every time we stray a little bit, we find that when we go back to the basics, we’re more successful.” 

Another profitable operation is in Pennsylvania.  Sellersville Charge-A-Car Vice President Tom Brandis as been using this model since 1992 and runs two BHPH lots.  “The policies keep the employees in line.  I don’t allow them to deviate too much without making a phone call to me.”

Yardstick for Improvement

Whether you are a member of a twenty group or purchase reports on your industry, its good practice to measure your performance and to know where your business is lacking and/or thriving.  One major advantage of being an active DCF dealer is that you receive monthly composites which allow you to analyze your performance by comparing your performance to other DCF lots and benchmarks.  The electronic composite consists of four pages.

Page 1 – Sales – This page includes year-to-date and month-to-date figures on retail finance, retail cash and wholesale.  Another section includes figures to compare your results to other active DCF dealers.  Aside from this data there are three bar graphs.  The first graph, “Units Financed,” shows the number of units your lot financed for the month and how many units the top 10 DCF dealers financed.  The second graph, “Average ROR,” shows your rate-of-return percentage compared to the top 10 dealers’ RORs.  On these graphs, the top 10 are identified by number, not name, so the names of dealers aren’t disclosed.  The third graph, “Retailed Financed Sales,” displays your monthly sales totals for the past two years.

Page 2 – Assets – This page includes accounts receivables balances, inventory, delinquency and the comparison to the average, median, minimum and maximum figures for active DCF accounts.  Graphs are also included to compare your figures to the top 10 dealers.

Page 3 – Bottom Line – This page includes information on bank deposits, profit and loss, and year-to-date charge off analysis.  Also included are the figures to compare your results to other active dealers.  Two of the graphs compare you to the top 10 dealers, while the remaining two graphs include the dealer average, minimum and maximum figures alongside yours for comparison.

Page 4 – Graphs – This page consists of eight graphs including information about the past month.  They all compare your figures to average, minimum and maximum dealer numbers.  The graphs are:

Average Selling price
Average Gross Profit
Average Rate-Of-Return
Average Cash-In-Deal
Average Cash Down
Average Contract length
First Run Delinquency
Monthly Collection Rate

When You’re Ready to Grow

After establishing their first BHPH operation, dealers often see the potential for a second operation, but choosing the location can be difficult.  The active DCF dealer will be assisted in location selection, generally 10 to 15 miles from the original location.  There is another start up fee for an additional lot of $7,500.  Other BHPH dealers feel that the distance is not as important as the control factor of the operation, opting to open lots as far away as 75 to 100 miles from the original location.

Afford-A-Car in the Dayton, Ohio, area has opened four additional locations since opening their first lot in 1992.  Each store follows the same structure which allows for consistency throughout the organization.

Tips for the Hands-off Dealer

Although the majority of BHPH dealers are not hands-off dealers, it is possible to run multiple locations with minimal headaches if you hire a general manager to keep tabs on how your business is running.  Another option is to hire a consultant to help you keep watch over your performance, or if you are a CarBiz client you can subscribe to an Additional Consulting Package (ACP). Michael Downey, software technology manager at CarBiz, said, “[ACP] is what we like to call our ‘Watchdog’ service, which is really geared toward an off-site owner who wants that third party to see how the operation is going.”  With this service, the owner and managers receive weekly phone calls and three onsite visits a year to help analyze how the business is running. 

Jenkins of Instant Auto Credit utilizes the Additional Consulting Package, which costs $1,000 per month.  He performs spot checks at the three lots throughout the week, but he said, “By having all their programs and guidelines in effect, I don’t have to manage the stores as closely…following the programs and their weekly calls frees me up to be doing other things.” 

Exceptions Can Be Made

Every dealer agrees that the best advice is to adhere to set practices, but understand that exceptions have to be made sometimes. Not every customer will fit into the underwriting guidelines you have defined.  If you never make exceptions you will lower your risk, but you may miss some good paying, loyal customers along the way. So, each customer must be viewed individually.

It is among these possible exceptions that many dealerships tend to get off track.  An exception maker must be designated.  If every sales associate has the ability to make exceptions, a dealer is likely to wind up with inconsistent buying, adversely impacting the portfolio performance.  If after a sales associate has checked off all required items and a potential customer doesn’t meet every requirement on the underwriting list, but the associate believes an exception could be made, an exception maker is called to review the deal and make a decision.  This way, the same person or small group of people is looking at all questionable deals and making all the decisions. 

Afford-A-Car in Ohio has a management office to manage all five of their lots, and all individuals designated as exception makers work out of that office.  This design allows them to manage effectively without any additional consulting.   The key is underwriting control by a few approved decision, or exception, makers.

Successful BHPH operations, regardless of the number of locations, all seem to have common traits – committed dealers who set policies and procedures and follow them without fail.   The most successful also continually measure their performance against their peers to improve their own performance.

 Vol 4, Issue 3


  1. 1. Frank Blair [ December 23, 2013 @ 07:59PM ]

    California has created laws for Buy Here/Pay Here dealers that make it much harder for that segment than any other state. Do dealers fear that other states will try and do the same????????

  2. 2. Mark Dubois [ March 19, 2014 @ 04:29PM ]

    CarBiz has been out of business since 2010. if you need help with BHPH start up, consulting or training contact:
    Mark Dubois
    Dealer Performance and Consulting
    Phone: 941-729-2357
    Specializing in BHPH / LHPH start up, training consulting and 20 Groups

  3. 3. Dave R [ April 24, 2014 @ 02:25PM ]

    Use GPS trackers on borrowers vehicles. This lowers your loan risk and encourages on-time payments. Easier to locate and recover default account vehicles.

  4. 4. Felicia fregene [ July 12, 2014 @ 01:36PM ]

    I wanna open my own buy here pay here lot. I have a passion for sales and enjoy it. Would love to have my own one day. Thanks felicia

  5. 5. Todd Connor [ February 03, 2015 @ 02:22PM ]

    I recently heard of a company that used GPS combined with an ignition "kill switch" to disable the vehicle if the terms are not met.

  6. 6. Alex [ July 07, 2015 @ 10:32AM ]

    I have managed multiple BHPH car lots here in Dallas, Tx and it is normal to install a gps with a kill switch in all of the units we have sold. You guys have to remember when dealing with the sub sub prime customers, you can loose your vehicle very fast.

  7. 7. cesar perelli [ July 19, 2015 @ 07:26AM ]

    is very easy to make money with bhph and the best is the repos is free money coming every day

  8. 8. Kerry Rowland [ July 29, 2015 @ 03:02PM ]

    I sell these GPS tracking devices to lots all over the country. Please contact me with Questions. I beat almost EVERYONES cost.


  9. 9. CHARLES ALFANO [ January 28, 2016 @ 05:09AM ]

    Is this business model good in New York

  10. 10. Krystal [ May 09, 2016 @ 03:49PM ]

    Do you have to have any type of license to run a tote the note lot?

  11. 11. Mark Butcher [ September 12, 2016 @ 06:12AM ]

    Keep in mind that GPS trackers are only useful if they work. So many of the companies that sell GPS trackers sell faulty devices. Cheaper devices usually have a defect rate of 20% -%50.When you think that the only reason to use a tracking device on a Buy here pay here financed car is to locate it when the customer stops paying that is liability that way too high. The company that I work for has been selling devices all over the country and international for 9 years. Our devices work 99.9%. Don't buy cheap, outdated devices. If you are so inclined to do so, save your money and put it in a" repossession fund" to offset your losses when a customer stops paying.

    Mark Butcher
    TM Fleet GPS Tracking

  12. 12. CHRIS OR RONDELL [ January 27, 2017 @ 01:57PM ]

    PLEASE CONTACT US AT 707 422 0352

  13. 13. Scott [ March 28, 2017 @ 11:25AM ]

    I have had a buy here - pay here business for the last 7 years. Many of the laws have changed in the business and the systems that people running using Credit Acceptance or new model cars don't work or make the same amount as a true buy here pay here. I have a system that I have run for 7 years that I learned from a business that has been around for the last 15 years and we are very successful running it and it works. We do sell operating agreements with full training and help setting up location, your forms, computer systems, and hiring employees. If anyone is interested in more info you can call me at my dealership. 816-531-7300 ask for Scott


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