Article

No Silver Bullet Solution to Finding Affordable Vehicle Inventory

October 2012, Auto Dealer Today - WebXclusive

by Mark Dubois - Also by this author

As a consultant and trainer in the buy here pay here (BHPH) industry, I travel the country working with BHPH dealers and state associations to find solutions on a wide range of challenges and issues. At every opportunity, I survey dealers and ask this important question: “What is the biggest challenge facing your BHPH business today?” In the majority of cases the response is, “Finding affordable vehicle inventory.

Over the past four years, dealers have seen the cost of acquiring vehicle inventory continue to increase, due in part to a shift in supply and demand. Statistics published in the June issue of NIADA’s Used Car Industry Report show that the average cost per vehicle sold for BHPH dealers has increased $488 from $4,978 in 2008 to $5,466 in 2011. Equally important are the published statistics on cash-in deals, which on average have increased from $3,848 in 2008 to $4,507 in 2011, or a total of $659. The third critical component that was published in the report shows the average customer down payment has decreased from $1,039 in 2009 to $959 in 2011, or a drop of $80.

 

These statistics and others in the NIADA report point to longer loan terms and higher risk associated with deal structure for dealers in BHPH financing. The best-performing dealers are being proactive in their businesses and taking action to protect their loan portfolios from experiencing higher defaults and charge-offs. These dealers continue to educate themselves and their staff on the key drivers to success in deal structure, underwriting and collections.  

The good news in a bad-news scenario is the trend in several economic indicators. The American economy continues to limp along at a sluggish pace with a high level of uncertainty for much of the country due to high unemployment and faltering real estate values and equity markets. These factors have resulted in damaged credit ratings and lower credit scores for many people in the country. As a result, BHPH financing becomes a more attractive option to a larger number of people. The June NIADA data supports this theory by reporting that BHPH dealers “on average sold 144 more vehicles in 2011 than in 2010.” However, it’s important to remember that the key to success in BHPH is not just selling more vehicles; it’s successfully collecting on more loans.

For BHPH dealers looking for vehicle inventory, wholesale auctions continue to be the most popular resource. Provided the auctions you attend sell vehicles in the price level that matches your business model, the cost per hour spent buying vehicle inventory at wholesale auctions can be very productive.

In addition to wholesale auctions, other resources BHPH dealers have utilized to acquire inventory include:

 

  • Networking with local new-car franchise dealers for older and higher-mileage vehicles the franchise dealers don’t want to resell;
  • Buying directly from the public by prominently displaying the words, “We buy vehicles from the public,” on signs and in advertising for their BHPH businesses;
  • Recycling inventory by reconditioning and reselling repossessed vehicles, which is gaining in popularity among BHPH dealers, as the cost of replacing the vehicles is often more expensive than reconditioning them; and
  • Utilizing a network of wholesale buyers as agents to purchase vehicles from auctions outside of your local market or state.

 

­There is some light at the end of the tunnel. In June 2012, Experian Automotive reported there are more than 245 million vehicles on the road in the U.S. and the average age of vehicles increased to 11 years. Although more people have opted to hold on to their used vehicle longer than in the past few years, the cost of maintaining and repairing worn parts and the additional wear and tear on the vehicle will at some point make trading or replacing the vehicle a more economically sound decision.

Dealers who are having success finding vehicle inventory are the ones who are utilizing more resources to acquire inventory, are traveling further afield to acquire inventory and are paying more money for the inventory they find. The idea of affordable inventory is a bit of an oxymoron in the economics of today’s supply-and-demand market. 

Finding vehicle inventory continues to be a challenge for BHPH dealers, and unfortunately there are no silver-bullet solutions to get around that reality.  

Vol. 9, Issue 8 

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